Holdups, Standard Breach Remedies, and Optimal Investment

Edlin, Aaron S.; Reichelstein, Stefan

doi:10.3386/w5007

Cited by 280 publications

(256 citation statements)

References 12 publications

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“…Thus, this threshold can be used to balance the incentives of the non-breaching party. Our result challenges the viewpoint expressed in Edlin (1996) and Edlin and Reichelstein (1996) that expectation damages are poorly suited to solve problems of bilateral investment. Moreover, in contrast to Ohlendorf (2009), this paper also suggests that it may not be necessary that both parties face the risk of ex-post breach.…”

Section: Introductioncontrasting

confidence: 52%

“…whereas expectation damages perform poorly. Ohlendorf (2009), however, points out that the poor performance of expectation damages can be attributed to Edlin and Reichelstein's (1996) assumption of a deterministic and linear cost function: If it is sufficiently concave, expectation damages can indeed induce the first best in Edlin and Reichelstein's (1996) setting. So far, the literature on the economic analysis of contract law has not dealt with bilateral cooperative investment.…”

Section: Introductionmentioning

confidence: 99%

“…The optimal contract turns out to be a combination between a Cadillac and a balancing contract and is thus henceforth called an augmented Cadillac contract. To obtain this optimality result, we do not impose stronger informational requirements than Edlin and Reichelstein (1996).…”

Section: Introductionmentioning

confidence: 99%

“…2 An alternative solution is offered by Edlin and Reichelstein (1996) who find that expectation damages and another standard breach remedy, specific performance, can induce the first best if quantity is continuous and can therefore be used as an instrument to balance the overinvestment effect of Shavell (1980) against the hold-up effect that arises in absence of contractual protection.…”

Section: Introductionmentioning

confidence: 99%

“…3 There do not exist many results for the bilateral investment problem. Edlin and Reichelstein (1996) analyze selfish investment and consider contracts that specify price and a quantity to be traded. Their main finding is that if the trade decision is continuous the socially optimal solution can be attained under the specific performance remedy 1 In most situations the court must only be able to form an unbiased estimate of damages, see Edlin (1996 p. 114).…”

Section: Introductionmentioning

confidence: 99%

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Expectation Damages and Bilateral Cooperative Investments

Göller¹

2014

American Law and Economics Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe examine the efficiency of the standard breach remedy expectation damages in a setting of bilateral cooperative investment by a buyer and a seller. Contracts may specify a required quality level and an upper bound to the cost of production. We find that it is optimal to write an augmented Cadillac contract that sets one threshold such that it cannot be met with positive probability together with an extreme price. Then, one of the parties becomes a residual claimant of the trade relationship. The other threshold can be used to balance the incentives of the other party.

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Section: Introductioncontrasting

confidence: 52%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Expectation Damages and Bilateral Cooperative Investments

Göller¹

2014

American Law and Economics Review

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The nature of agroparks: synergy versus risk

Galen

Asseldonk

et al. 2011

Agribusiness

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An ideal agropark is envisaged as a planned agribusiness system in which all activities are geared towards sustainable development based on the principles of industrial ecology. The agropark concept offers in theory a variety of economic advantages as well as environmental benefits. The implementation of the concept, however, has encountered many challenges. This paper introduced an analytical framework for evaluating the synergy and risk of agroparks. The analysis brought into prominence the impact of institutional arrangements on the success or failure of agropark formation. An overview of the risks related to the agropark concept was provided. It was concluded that the key to successful formation and operation of the an agropark is the choice of proper institutional arrangements that create high incentives to cooperate and incur low institution cost. © 2011 Wiley Periodicals, Inc.

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Can a Contract Solve Hold-Up When Investments Have Externalities? A Comment on De Fraja (1999)

Che

2000

Games and Economic Behavior

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Holdups, Standard Breach Remedies, and Optimal Investment

Cited by 280 publications

References 12 publications

Expectation Damages and Bilateral Cooperative Investments

Expectation Damages and Bilateral Cooperative Investments

The nature of agroparks: synergy versus risk

Can a Contract Solve Hold-Up When Investments Have Externalities? A Comment on De Fraja (1999)

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