EconStor >
Rheinische Friedrich-Wilhelms-Universität Bonn >
Bonn Graduate School of Economics (BGSE), Universität Bonn >
Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn >

Please use this identifier to cite or link to this item:

Full metadata record

DC FieldValueLanguage
dc.contributor.authorOhlendorf, Susanneen_US
dc.description.abstractWe consider a bilateral trade setting with costless renegotiation and investment by both the buyer and the seller. Whether first best levels of relationship-specific investment can be induced by a simple contract depends on available breach remedies. As demonstrated by Edlin and Reichelstein (1996), a contract specifying an up-front transfer, a quantity and a per-unit price is in general not able to achieve the first best when the breach remedy is expectation damages. We show that this result is due to the linearity of the cost function in their counterexample, and does not extend beyond the linear case. If marginal cost is increasing, then at intermediate prices both parties face the risk of breaching, and the first best becomes attainable.en_US
dc.relation.ispartofseriesBonn econ discussion papers 2006,25en_US
dc.subject.keywordexpectation damagesen_US
dc.subject.keywordbreach remediesen_US
dc.titleExpectation Damages, Divisible Contracts, and Bilateral Investmenten_US
dc.typeWorking Paperen_US
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

Files in This Item:
File Description SizeFormat
bgse25_2006.pdf327.27 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.