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...

We obtain laboratory evidence that suggests that (i) promisors are more likely to keep promises the more they were relied upon by a promisee; (ii) this effect is anticipated by promisees, who accordingly strategically overinvest to lock promisors into keeping their promises (“psychological...

Recent research suggests that loss framed contracts are an effective instrument for principals to maximize the effort of their agents. Framing effects arise from defining thresholds that vary the salience of losses and gains while preserving payoff equivalence of the underlying contract. While...

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 commonly applied remedy of US contract law induces the first best. Yet,...

This article provides a functional overview on different forms of director liability from a law & economics perspective. It introduces key concepts of the economic analysis of tort law and applies them to sharpen the perspective on the doctrinal concept of “internal liability”...

Easy availability of rescission followed by restitution has, for centuries, unsettled legal authorities, who fear it as a threat to commercial order or other normative values. Responding to these fears, authorities have limited the ease with which rescission may be elected. Their approach is...

We show that parties in bilateral trade can rely on the default common law breach remedy of `expectation damages' to induce simultaneously first-best relationship-specific investments of both the selfish and the cooperative kind. This can be achieved by writing a contract that specifies a...