Journal Article

On and Off Contract Remedies Inducing Cooperative Investments

Richard R.W. Brooks and Alexander Stremitzer

in American Law and Economics Review

Published on behalf of The American Law and Economics Association

Volume 14, issue 2, pages 488-516
Published in print December 2012 | ISSN: 1465-7252
Published online October 2012 | e-ISSN: 1465-7260 | DOI: https://dx.doi.org/10.1093/aler/ahs011
On and Off Contract Remedies Inducing Cooperative Investments

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  • Game Theory and Bargaining Theory
  • Particular Labour Markets
  • Firm Objectives, Organization, and Behaviour
  • Contract Law

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A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety are two fundamental alternatives. The aggrieved party may (i) ‘affirm’ the contract and seek money damages or specific performance, or (ii) ‘disaffirm’ the contract with the remedy of rescission and seek restitution. This simple dichotomy of contract remedies applies broadly in both common law and civil law practice. We show here that this remedial regime allows parties to write simple contracts that induce first-best cooperative investments.

Keywords: K12; L22; J41; C70

Journal Article.  7546 words.  Illustrated.

Subjects: Game Theory and Bargaining Theory ; Particular Labour Markets ; Firm Objectives, Organization, and Behaviour ; Contract Law

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