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Über dieses Buch

“Efficient breach” is one of the most discussed topics in the literature of law and economics. What remedy incentivizes the parties of a contract to perform contracts if and only if it is efficient? This book provides a new perception based on an in-depth analysis of the impact the market structure, asymmetry of information, and deviations from the rational choice model have, comprehensively.
The author compares the two predominant remedies for breach of contract which have been adopted by most jurisdictions and also found access to international conventions like the Convention on Contracts for the International Sale of Goods (CiSG): Specific performance and expectation damages. The book illustrates the complexity such a comparison has under more realistic assumptions. The author shows that no simple answer is possible, but one needs to account for the circumstances. The comparison takes an economic approach to law applying game theory. The game-theoretic models are consistent throughout the entire book which makes it easy for the reader to understand what effects different assumptions about the market structure, the distribution of information, and deviations from the rational choice model have, and how they are intertwined.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
It is an important topic in legal theory and law and economics how contracts and the law should protect the buyer’s entitlement to the performance of a contract. In my work, I analyze the so-called efficient breach scenario: After two parties have concluded a contract the circumstances change rendering the costs of performance higher than the buyer’s valuation. What should the remedy look like to resolve such situations? Acknowledging the complexity of the problem and that there is not the one remedy that serves the parties best under all circumstances my work contributes by analyzing distributional effects and efficiency under specific performance and expectation damages. My work puts a focus on three topics that have not got the deserved attention so far: the influence of the market structure, the informational structure and insights from behavioral economics about human behavior.
Oliver Hofmann

Chapter 2. Breach or Perform Decision: The Traditional Model of the Efficient Breach

Abstract
This chapter outlines the standard model of efficient breach.
Oliver Hofmann

Chapter 3. Distributional Effects and the Original Contract

Abstract
The choice of remedy is not only a matter of efficiency but also concerns the distribution among the parties; the topic of this chapter.
Oliver Hofmann

Chapter 4. The Option to Cover

Abstract
Imagine the seller and buyer agreed on a sales contract and there exists a market for the good that is subject to the contract. If it turns out that the seller’s costs have increased either one can purchase the good from another provider and thereby kill two birds with one stone; the seller does not need to incur her high costs of performance in order that the buyer receives the performance. It is important to stress that if the option to cover exists it generally does so for both parties. In the following, I compare the effect of the option to cover given that either the buyer can claim specific performance from the seller but not the difference in price or the seller can breach and pay expectation damages.
Oliver Hofmann

Chapter 5. Over- and Undercompensation

Abstract
This chapter discusses the consequences if expectation damages do not make the buyer indifferent but are either over- or undercompensatory. The specific performance gives the buyer the power to gain at least his valuation by claiming performance. The buyer would not excuse the seller from her obligation for a side payment less than his valuation (Depoorter and Tontrup 2012, p. 677). This part of the analysis concentrates on expectation damages and refers to specific performance only to highlight differences or similarities. The analysis starts with undercompensatory damages, i.e., a shortfall, proceeds with overcompensatory damages, and concludes with the results.
Oliver Hofmann

Chapter 6. Incomplete Information

Abstract
Uncertainty entering the analysis has a deep impact. It can affect the seller’s unilateral decision whether to breach the contract under expectation damages as well as the renegotiation of the contract under both remedies. This chapter analyzes the effects of either the buyer or the seller having superior knowledge about their valuation or costs of performance.
Oliver Hofmann

Chapter 7. Transaction Costs

Abstract
As we have seen in the standard model for the efficient breach scenario (Chap. 2), under the assumption of full compensation of the buyer and zero transaction costs, both specific performance and expectation damages lead to efficient results ex post (Bishop 1985; Kornhauser 1986, 716–717). Chapter 5 covered the effects if damages are not fully compensatory. This part examines transaction costs.
Oliver Hofmann

Chapter 8. Conclusion

Abstract
My work sets out to contribute to a more complex theory of remedies. There is not one superior remedy but context matters. The subject of the analysis is the efficient breach scenario. The analysis goes beyond simplifying debates like whether the greater problem is undercompensatory damages which would incentivize the seller to breach too often or whether bargaining costs render specific performance inefficient. It takes a more generalizable approach than using factors like the type of contract to build categories and making assumptions what kind of inefficiency would be more prominent in the respective category. This chapter summarizes the findings of that analysis, categorizes them and provides the bigger picture.
Oliver Hofmann
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