The present article provides an economic analysis to examine how contract damages affects both breach and investment … decisions over time. Unlike the standard static model, this article studies a model in which, upon signing a contract, a seller … investigate investment dynamics under alternative contract damages. First, under expectation damages, the seller has an incentive …

is better off if she grants the agent the option to walk away from the contract. By doing so, the principal is implicitly … contract theory literature that the exit option reduces the principal’s welfare, while protecting the agent. Our result is …

contract specifying a price and quantity of the final good to be traded will, fairly generally, induce efficient investments if …, 1996). Second, and in contrast, no contract however complicated is of any value in reducing the inefficiency if the …). We show that courts of law may play a more important role in real contract disputes than has been realized. The key …