Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94047
Authors: 
Ohlendorf, Susanne
Year of Publication: 
2008
Series/Report no.: 
SFB/TR 15 Discussion Paper 231
Abstract: 
This paper examines the efficiency of expectation damages as a breach remedy in a bilateral trade setting with renegotiation and relationship-specific investment by the buyer and the seller. As demonstrated by Edlin and Reichelstein (1996), no contract that specifies only a fixed quantity and a fixed per-unit price can induce efficient investment if marginal cost is constant and deterministic. We show that this result does not extend to more general payoff functions. If both parties face the risk of breaching, the first best becomes attainable with a simple price-quantity contract.
Subjects: 
breach remedies
renegotiation
hold-up
JEL: 
K12
D86
L14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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