We show that parties in bilateral trade can rely on the default common law breach remedy of ‘expectation damages’ to induce simultaneously ?rst-best relationship-speci?c investments of both the sel?sh and the cooperative kind. This can be achieved by writing a contract that speci?es...

We analyze liability rules in a setting where injurers are potentially insolvent and where negligence standards may deviate from the socially optimal level. We show that proportional liability, which sets the measure of damages equal to the harm multiplied by the probability that it was caused...

If a seller delivers a good non-conforming to contract, European and US warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use non-conformity as a pretext for getting rid of a...

When investments are non-verifiable, 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...

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety lurk two fundamental alternatives. The aggrieved party may (i) “affirm†the contract and seek money damages or specific...

We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other...

Designing a contract is often more of an economic than a legal problem. A good contract protects parties against opportunistic behavior while providing motivation to cooperate. This is where economics and, especially contract theory, may prove helpful by enhancing our understanding of incentive...