IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0727.html
   My bibliography  Save this paper

On the Design of Contracts and Remedies for Breach

Author

Listed:
  • Steven Shavell

Abstract

The implications of uncertainty for the design of contracts and of remedies for their breach are studied. After characterizing complete contingent contracts, incomplete contracts are examined. Specifically, in view of difficulties in making contingent provisions (costs of enumeration and of bargaining; verification of occurrence of events), it is shown for which contingencies provisions are made. Then, in the major part of the paper, two important implicit substitute for contingent terms are analyzed. The first is provided by remedies for breach of contract; for when a party must pay damages for breach, he will be induced to fulfill his obligations in approximately those contingencies which would have been agreed upon under the terms of a detailed contract. The second substitute for contingent terms lies in the opportunity for renegotiation in light of circumstances, since renegotiation will occur in more or less those contingencies where the contract terms would have differed under a more detailed agreement.

Suggested Citation

  • Steven Shavell, 1981. "On the Design of Contracts and Remedies for Breach," NBER Working Papers 0727, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0727
    Note: LE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0727.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. A. Mitchell Polinsky, 1981. "Risk Sharing through Breach of Contract Remedies," NBER Working Papers 0714, National Bureau of Economic Research, Inc.
    2. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Martimort & Aggey Semenov & Lars Stole, 2017. "A Theory of Contracts with Limited Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 816-852.
    2. Göller, Daniel & Stremitzer, Alexander, 2014. "Breach remedies inducing hybrid investments," International Review of Law and Economics, Elsevier, vol. 37(C), pages 26-38.
    3. Scott Baker & Pak Yee Lee & Claudio Mezzetti, 2011. "Intellectual property disclosure as threat," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 21-38, March.
    4. 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.
    5. Di Corato, Luca & Dosi, Cesare & Moretto, Michele, 2015. "Multidimensional auctions for long-term procurement contracts under the threat of early exit: the case of conservation auctions," Working Paper Series 2015:6, Swedish University of Agricultural Sciences, Department Economics.
    6. Maija Halonen-Akatwijuka & Oliver D. Hart, 2013. "More is Less: Why Parties May Deliberately Write Incomplete Contracts," NBER Working Papers 19001, National Bureau of Economic Research, Inc.
    7. Nahum D. Melumad, 1989. "Asymmetric information and the termination of contracts in agencies," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 733-753, March.
    8. Daniel Göller, 2014. "Expectation Damages and Bilateral Cooperative Investments," American Law and Economics Review, American Law and Economics Association, vol. 16(2), pages 473-498.
    9. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    10. Brooks, Richard & Stremitzer, Alexander, 2009. "On and Off Contract Remedies," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 290, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    11. John Haltiwanger & Michael Waldman, 1983. "Interpreting Real World Contracts: An Investigation of Ex Post Mutually Beneficial Agreements," UCLA Economics Working Papers 290, UCLA Department of Economics.
    12. Friedrich L. Sell & Marcus Wiens, 2006. "Vertrauen: Substitut oder Komplement zu formellen Institutionen?," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(4), pages 605-633.
    13. 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.
    14. Jacobi, Osnat & Weiss, Avi, 2013. "Allocation of fault in contract law," International Review of Law and Economics, Elsevier, vol. 36(C), pages 1-11.
    15. Ola Kvaløy & Trond E. Olsen, 2016. "Incentive Provision when Contracting is Costly," Economica, London School of Economics and Political Science, vol. 83(332), pages 741-767, October.
    16. Deborah Minehart & Zvika Neeman, 1999. "Termination and Coordination in Partnerships," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(2), pages 191-221, June.
    17. Jean-Marc Bourgeon & Pierre Picard, 2017. "Nitpicky Insurers and the Law of Contracts," CESifo Working Paper Series 6669, CESifo.
    18. Kyoungwon Rhee, 2007. "The Value of Contracting with the Sequential Investments: The Role of Outside Values," Korean Economic Review, Korean Economic Association, vol. 23, pages 89-110.
    19. Simon Schropp, 2007. "Revisiting the "Compliance-vs.-Rebalancing" Debate in WTO Scholarship a Unified Research Agenda," IHEID Working Papers 29-2007, Economics Section, The Graduate Institute of International Studies, revised Dec 2007.
    20. Matthias Kräkel, 2010. "Double-Sided Moral Hazard, Efficiency Wages, and Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(2), pages 337-364.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0727. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.