1. Introduction
On the level of economic transactions, contractual relations have emerged over time to govern behavior of people involved in doing business in order to promote the efficient allocation of scarce ressources.1 Thereby, contracts create order, reduce uncertainty or transform uncertainty into risk and thus are basic premises allowing for the exchange of goods or services.2 However, depending on the nature of the economic transaction, parties involved in a contractual agreement may prefer to grant breach of contract if it proves to be efficient compared to performing the contract throughout duration. Hence, in order to guarantee the mutual benefit and thus, in fact, pareto efficiency of breach of contract, contractual settings have to be designed sophisticatedly to account for situations, where a contractual party may want to default and breach a contract.
Based on a paper by Steven Shavell,3 in the following, damage measures shall be critically discussed as efficient coordination mechanisms of interests in the event of breach of contract.
First of all, the need for contractual settings in order to promote efficient breach of contract given incomplete contingent contracting will be outlined. Then, a light shall be shed on the model of damage measures as used and introduced by Shavell. Thereafter, Shavell’s approach shall be critically discussed and some further implications will be given.
Inhaltsverzeichnis (Table of Contents)
- 1. INTRODUCTION
- 2. EFFICIENT BREACH OF CONTRACT AND DAMAGE MEASURES
- 2.1 INCOMPLETE CONTINGENT CONTRACTS AND INEFFICIENCY
- 2.2 DAMAGE MEASURES AS SUBSTITUTES OF COMPLETELY SPECIFIED CONTRACTS
- 2.3 EVALUATION OF DAMAGE MEASURES.
- 2.4 SUMMARY
- 3. CRITICAL ISSUES FOR DAMAGE MEASURES.
- 3.1 TRANSACTION COSTS, DAMAGE MEASURES AND ALTERNATIVE CONTRACTUAL DESIGNS..
- 3.2 THE PROBLEM OF FULL COMPENSATION
- 3.3 SUMMARY
- 4. CONCLUSION
- REFERENCES
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This assignment critically examines the role of damage measures in ensuring efficient breach of contract. It aims to analyze how damage measures can act as substitutes for complete contingent contracts, which are often impractical due to transaction costs and informational asymmetries. The analysis delves into the potential inefficiencies arising from incomplete contracts and how damage measures can mitigate these inefficiencies.
- The role of transaction costs and incomplete contracts in determining the need for efficient breach mechanisms.
- Damage measures as a means of promoting efficient breach by providing incentives for parties to behave in a way that approximates a fully specified contract.
- The complexities and limitations of damage measures, including the challenges of achieving full compensation and the impact of alternative contractual designs.
- The need for careful design of damage measures to ensure fairness and efficiency.
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction
- Chapter 2: Efficient Breach of Contract and Damage Measures
- Chapter 3: Critical Issues for Damage Measures
This chapter introduces the concept of efficient breach of contract within the framework of economic transactions. It emphasizes the need for contractual settings that account for situations where one party might choose to default on a contract, given that complete contingent contracting is often unrealistic due to transaction costs and informational challenges.
This chapter explores the role of damage measures in promoting efficient breach of contract. It first examines the challenges of incomplete contingent contracts and the inefficiencies that can arise from unexpected contingencies. Then, the chapter presents Shavell's model of damage measures as substitutes for fully specified contracts, demonstrating how they can create incentives for efficient behavior.
This chapter delves into the complexities and potential limitations of damage measures. It explores the relationship between transaction costs, damage measures, and alternative contractual designs. Additionally, it examines the challenges of achieving full compensation and the potential for unintended consequences in specific contexts.
Schlüsselwörter (Keywords)
The core keywords of this assignment include efficient breach of contract, damage measures, incomplete contracts, transaction costs, information asymmetry, pareto efficiency, contractual design, and full compensation. The analysis focuses on the interplay between these concepts and their implications for the efficient governance of contractual relations.
- Quote paper
- David Haag (Author), 2007, Efficient breach of contract - the role of damage measures, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/75726
