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The Questionable Efficiency of the Efficient-Breach Doctrine

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  • Daphna Lewinsohn-Zamir

Abstract

The doctrine of efficient breach is based on the belief that the risk of postcontractual bargaining failure under property rules is greater than the risk of the courts' miscalculation of damages under liability rules. The article presents the findings of two experiments that challenge this belief and suggest that courts systematically undercompensate promisees. Implementation of the efficient-breach doctrine might therefore lead to underdeterrence and inefficiency.

Suggested Citation

  • Daphna Lewinsohn-Zamir, 2012. "The Questionable Efficiency of the Efficient-Breach Doctrine," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 5-26, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201203)168:1_5:tqeote_2.0.tx_2-w
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    References listed on IDEAS

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    1. Peter Diamond & Hannu Vartiainen, 2007. "Introduction to Behavioral Economics and Its Applications," Introductory Chapters, in: Peter Diamond & Hannu Vartiainen (ed.),Behavioral Economics and Its Applications, Princeton University Press.
    2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
    3. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.
    4. Broome,John, 1999. "Ethics out of Economics," Cambridge Books, Cambridge University Press, number 9780521644914.
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    Cited by:

    1. Uriel Haran, 2013. "A Person--Organization Discontinuity in Contract Perception: Why Corporations Can Get Away with Breaking Contracts But Individuals Cannot," Management Science, INFORMS, vol. 59(12), pages 2837-2853, December.
    2. Urs Schweizer, 2012. "The Questionable Efficiency of the Efficient-Breach Doctrine," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 32-37, March.
    3. Oren Bar-Gill & Christoph Engel, 2016. "Bargaining in the Absence of Property Rights: An Experiment," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 477-495.
    4. Alan D. Schwartz, 2012. "The Questionable Efficiency of the Efficient-Breach Doctrine," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 27-31, March.
    5. Oren Bar-Gill & Christoph Engel, 2018. "How to Protect Entitlements: An Experiment," Journal of Law and Economics, University of Chicago Press, vol. 61(3), pages 525-553.
    6. Christoph Engel & Lars Freund, 2017. "Behaviorally Efficient Remedies – An Experiment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2017_17, Max Planck Institute for Research on Collective Goods.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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