This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz...

When investments are nonverifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling "expectation damages" close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to lower...

This study models producer protection legislation that would grant growers the right to claim damages (PPLD) if their contracts are prematurely terminated. In the absence of contracting frictions that prevent contractors from redesigning contracts to accommodate exogenous policy changes, PPLD...

We consider default rules for instances in which parties to a contract did not allocate the risk of a certain contingency, and both sides could have helped avoid the occurrence of breach of the contract or lessen the damages from it occurring. We compare alternative regimes with a fault-based...

The aim of this paper is threefold: we first discuss the appropriateness of the traditional trust-game-tree for the analysis of trust relationships. Following the definition put forward by Lee et al. (2005) that "confident expectations and a willingness to be vulnerable are critical components...

The decision making of judges is prone to error and misapprehension. Consequently, the prevailing literature ties the economic function of courts to dispute resolution and minimization of rule making costs. In contrast to previous research, this analysis applies a contract theoretic perspective...

I consider transactions involving asymmetric prisoners dilemmas between pairs of players selected chosen from two large populations. Games are played repeatedly, but information about cheating is not adequate to sustain cooperation, and there is no official legal system of contract enforcement....

We develop a theoretical model to identify and compare partial and equilibrium effects of uncertainty and the magnitude of fines on punishment and deterrence. Partial effects are effects on potential violators' and punishers' decisions when the other side's behavior is exogenously given....

We investigate entry in a dynastic entrepreneurship (overlapping generations) environment created by employee spinoffs. Without finance constraints, enforcement of non-compete agreements unambiguously improves social welfare outcomes, and even increases the rate of spinoffs from original firms....

This paper explores potential endowment effects of contractual default rules. For this purpose, we analyze the Hadley liability default clause in a model of bilateral bargaining of lotteries against safe options. The liability default clause determines the right for the safe payoff option. We...