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Efficient incentives from obligation law and the compensation principle

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  • Schweizer, Urs

Abstract

The compensation principle provides an analytical link between the requirement to compensate for deviations from legal or contractual obligations and the economic desideratum of rules providing efficient incentives. Quantifying damages suitably in line with the difference hypothesis, even relative to an inefficient obligation profile, would ensure the compensating goal being achieved as required for the compensation principle. The paper applies this insight to various settings from tort and contract law, leading to new results but also to a unifying perspective on findings from the existing literature.

Suggested Citation

  • Schweizer, Urs, 2016. "Efficient incentives from obligation law and the compensation principle," International Review of Law and Economics, Elsevier, vol. 45(C), pages 54-62.
    • Handle: RePEc:eee:irlaec:v:45:y:2016:i:c:p:54-62
    DOI: 10.1016/j.irle.2015.11.005
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    References listed on IDEAS

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    1. Susanne Ohlendorf, 2009. "Expectation Damages, Divisible Contracts, and Bilateral Investment," American Economic Review, American Economic Association, vol. 99(4), pages 1608-1618, September.
    2. Alexander Stremitzer, 2012. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 337-359.
    3. Rea, Samuel Jr., 1987. "The economics of comparative negligence," International Review of Law and Economics, Elsevier, vol. 7(2), pages 149-162, December.
    4. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
    5. Urs Schweizer, 2006. "Cooperative Investments Induced by Contract Law," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 134-145, Spring.
    6. Kornhauser, Lewis A & Revesz, Richard L, 1991. "Sequential Decisions by a Single Tortfeasor," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 363-380, June.
    7. Grady, Mark F, 1988. "Common Law Control of Strategic Behavior: Railroad Sparks and the Farmer," The Journal of Legal Studies, University of Chicago Press, vol. 17(1), pages 15-42, January.
    8. Schweizer, Urs, 2005. "Law and Economics of Obligations," International Review of Law and Economics, Elsevier, vol. 25(2), pages 209-228, June.
    9. Urs Schweizer, 2006. "Cooperative investments induced by contract law," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 134-145, March.
    10. Daniel Göller & Michael Hewer, 2014. "Economic Analysis of Taking Rules: The Bilateral Investment Case," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(3), pages 520-536, September.
    11. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Legal obligation; Difference hypothesis; Compensation goal; Compensation principle; Efficient incentives; Efficient breach; Negligence rule; Liability in sequential choice; Hold-up problem;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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