Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159926
Authors: 
Bigoni, Maria
Bortolotti, Stefania
Parisi, Francesco
Porat, Ariel
Year of Publication: 
2016
Series/Report no.: 
Quaderni - Working Paper DSE 1088
Abstract: 
Current law and economics scholarship analyzes efficient breach cases monolithically. The standard analysis holds that breach is efficient when performance of a contract generates a negative total surplus for the parties. However, by simplistically grouping efficient breach cases as of a single kind, the prior literature overlooks that gainseeking breaches might be different from loss-avoiding breaches. To capture these different motives, we designed a novel game called Contract-Breach Game where we exogenously varied the reasons for the breach — pursuing a gain or avoiding a loss — under a specific performance remedy. Results from an incentivized laboratory experiment indicate that the motives behind the breach induce sizable differences in behavior; subjects are less willing to renegotiate when facing gain-seeking than loss-avoiding breaches, and the compensation premium obtained by the promisee is higher. Our analysis suggests that inequality aversion is an important driver of our results; indeed, inequality-averse subjects accept low offers more often in cases of loss-avoiding breaches than gain-seeking breaches. These results give us insight into the preferences and expectations of ordinary people in a case of a breach.
JEL: 
K12
D86
C9
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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