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dc.contributor.authorOhlendorf, Susanneen_US
dc.date.accessioned2009-01-29T15:11:30Z-
dc.date.available2009-01-29T15:11:30Z-
dc.date.issued2006en_US
dc.identifier.urihttp://hdl.handle.net/10419/22970-
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.language.isoengen_US
dc.publisheren_US
dc.relation.ispartofseriesBonn econ discussion papers 2006,25en_US
dc.subject.jelD86en_US
dc.subject.jelK12en_US
dc.subject.jelL14en_US
dc.subject.ddc330en_US
dc.subject.keywordexpectation damagesen_US
dc.subject.keywordbreach remediesen_US
dc.subject.keywordrenegotiationen_US
dc.subject.keywordhold-upen_US
dc.titleExpectation Damages, Divisible Contracts, and Bilateral Investmenten_US
dc.typeWorking Paperen_US
dc.identifier.ppn525236449en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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