[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/mpg/wpaper/2017_17.html
   My bibliography  Save this paper

Behaviorally Efficient Remedies – An Experiment

Author

Listed:
  • Christoph Engel

    (Max Planck Institute for Research on Collective Goods)

  • Lars Freund

    (Max Planck Institute for Research on Collective Goods)

Abstract
Under common law, the standard remedy for breach of contract is expectation damages. Under continental law, the standard is specific performance. The common law solution is ex post efficient. But is it also ex ante efficient? We use experimental methods to test whether knowing that non-fulfilment will only lead to damages deters mutually beneficial trade. The design excludes aversion against others willfully breaking their promises. We find that there is indeed less trade if specific performance is not guaranteed, provided the preference for the traded commodity is sufficiently pronounced.

Suggested Citation

  • Christoph Engel & Lars Freund, 2017. "Behaviorally Efficient Remedies – An Experiment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2017_17, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2017_17
    as

    Download full text from publisher

    File URL: http://www.coll.mpg.de/pdf_dat/2017_17online.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Urs Schweizer, 2012. "Breach Remedies, Performance Excuses, and Investment Incentives," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(4), pages 717-733, October.
    2. B. Douglas Bernheim, 2009. "Behavioral Welfare Economics," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 267-319, 04-05.
    3. Daphna Lewinsohn-Zamir, 2012. "The Questionable Efficiency of the Efficient-Breach Doctrine," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 5-26, March.
    4. Charles R. Plott & Kathryn Zeiler, 2005. "The Willingness to Pay–Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations," American Economic Review, American Economic Association, vol. 95(3), pages 530-545, June.
    5. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 51-104.
    6. Friedmann, Daniel, 1989. "The Efficient Breach Fallacy," The Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 1-24, January.
    7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    8. Ann-Renée Blais & Elke U. Weber, 2006. "A Domain-Specific Risk-Taking (DOSPERT)Scale for Adult Populations," CIRANO Working Papers 2006s-24, CIRANO.
    9. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    10. Alexander Stremitzer, 2012. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 337-359.
    11. Sloof, Randolph & Oosterbeek, Hessel & Riedl, Arno & Sonnemans, Joep, 2006. "Breach remedies, reliance and renegotiation," International Review of Law and Economics, Elsevier, vol. 26(3), pages 263-296, September.
    12. Urs Schweizer, 2006. "Cooperative Investments Induced by Contract Law," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 134-145, Spring.
    13. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    14. repec:cup:judgdm:v:1:y:2006:i::p:33-47 is not listed on IDEAS
    15. Bock, Olaf & Baetge, Ingmar & Nicklisch, Andreas, 2014. "hroot: Hamburg Registration and Organization Online Tool," European Economic Review, Elsevier, vol. 71(C), pages 117-120.
    16. Urs Schweizer, 2006. "Cooperative investments induced by contract law," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 134-145, March.
    17. Sloof, Randolph & Leuven, Edwin & Oosterbeek, Hessel & Sonnemans, Joep, 2003. "An Experimental Comparison of Reliance Levels under Alternative Breach Remedies," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 205-222, Summer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oren Bar-Gill & Christoph Engel, 2018. "How to Protect Entitlements: An Experiment," Journal of Law and Economics, University of Chicago Press, vol. 61(3), pages 525-553.
    2. Tamás Csermely & Alexander Rabas, 2016. "How to reveal people’s preferences: Comparing time consistency and predictive power of multiple price list risk elicitation methods," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 107-136, December.
    3. Glenn W. Harrison & Jia Min Ng, 2018. "Welfare effects of insurance contract non-performance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 39-76, May.
    4. Caliari, Daniele, 2023. "Behavioural welfare analysis and revealed preference: Theory and experimental evidence," Discussion Papers, Research Unit: Economics of Change SP II 2023-303, WZB Berlin Social Science Center.
    5. Glenn W. Harrison & Jia Min Ng, 2016. "Evaluating The Expected Welfare Gain From Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 91-120, January.
    6. Oren Bar-Gill & Christoph Engel, 2016. "Bargaining in the Absence of Property Rights: An Experiment," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 477-495.
    7. Björn Bartling & Florian Engl & Roberto A. Weber, 2015. "Game form misconceptions are not necessary for a willingness-to-pay vs. willingness-to-accept gap," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(1), pages 72-85, July.
    8. Celse, Jeremy & Karakostas, Alexandros & Zizzo, Daniel John, 2023. "Relative risk taking and social curiosity," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 243-264.
    9. Rosenboim, Mosi & Shavit, Tal & Cohen, Chen, 2013. "Do bidders require a monetary premium for cognitive effort in an auction?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 99-105.
    10. Göller, Daniel & Stremitzer, Alexander, 2014. "Breach remedies inducing hybrid investments," International Review of Law and Economics, Elsevier, vol. 37(C), pages 26-38.
    11. Tim Krieger & Christine Meemann & Stefan Traub, 2022. "Inequality, Life Expectancy, and the Intragenerational Redistribution Puzzle - Some Experimental Evidence," CESifo Working Paper Series 9677, CESifo.
    12. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    13. Schweizer, Urs, 2016. "Efficient incentives from obligation law and the compensation principle," International Review of Law and Economics, Elsevier, vol. 45(C), pages 54-62.
    14. Daniel Göller, 2014. "Expectation Damages and Bilateral Cooperative Investments," American Law and Economics Review, American Law and Economics Association, vol. 16(2), pages 473-498.
    15. Desmet, Pieter T.M. & Engel, Christoph, 2021. "People are conditional rule followers," Journal of Economic Psychology, Elsevier, vol. 85(C).
    16. Drichoutis, Andreas C. & Nayga, Rodolfo M. & Lusk, Jayson L. & Lazaridis, Panagiotis, 2012. "When a risky prospect is valued more than its best possible outcome," Judgment and Decision Making, Cambridge University Press, vol. 7(1), pages 1-18, January.
    17. Jacobs Martin, 2016. "Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences," Review of Economics, De Gruyter, vol. 67(2), pages 121-183, August.
    18. Waichman, Israel & Requate, Till & Karde, Markus & Milinski, Manfred, 2021. "Challenging conventional wisdom: Experimental evidence on heterogeneity and coordination in avoiding a collective catastrophic event," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    19. Gerardo Infante & Guilhem Lecouteux & Robert Sugden, 2016. "Preference purification and the inner rational agent: a critique of the conventional wisdom of behavioural welfare economics," Journal of Economic Methodology, Taylor & Francis Journals, vol. 23(1), pages 1-25, March.
    20. Eugenio Proto & Aldo Rustichini & Andis Sofianos, 2020. "Intelligence, Errors and Strategic Choices in the Repeated Prisoners Dilemma," Working Papers 2020_07, Business School - Economics, University of Glasgow.

    More about this item

    Keywords

    remedies; breach of contract; specific performance; expectation damages; reliance damages; donation; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpg:wpaper:2017_17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marc Martin (email available below). General contact details of provider: https://edirc.repec.org/data/mppggde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.