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Damages for Breach of Contract: Should the Government Get Special Treatment?

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  • Wickelgren, Abraham L

Abstract

Contracts that involve the government differ from contracts between two private parties in that the identity of one of the parties, the government, is subject to change. Given that the incumbent government knows that it might not be in power when the contract is completed, it may have an incentive to structure the contract to make it more difficult for a new government to renegotiate it. I show that traditional damage measures used in contracts between two private parties exacerbate this problem. The reliance damage measure induces the incumbent government to enlarge projects beyond the socially optimal level when it fears that a new government will want to cut it back. Expectation damages suffer from the same defect, though to a lesser extent. Copyright 2001 by Oxford University Press.

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  • Wickelgren, Abraham L, 2001. "Damages for Breach of Contract: Should the Government Get Special Treatment?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(1), pages 121-148, April.
    • Handle: RePEc:oup:jleorg:v:17:y:2001:i:1:p:121-48
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    Cited by:

    1. Louis Kaplow, 2003. "Transition Policy: A Conceptual Framework," NBER Working Papers 9596, National Bureau of Economic Research, Inc.

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