The effectiveness of stipulated damages in inefficiently excluding competitors can be undermined by the penalty doctrine and by the possibility of renegotiation. Recent works show that investment by the breached-against party can restore the effectiveness of stipulated damages. The authors...

We study alternative breach remedies in the presence of specific investments that generate a direct benefit to the investor's trading partner (referred to as "cooperative investments."). We find that (i) expectation damages perform very poorly, inducing no cooperative investment; (ii) privately...

An optimal contract design problem is considered. Contracts which are incomplete and simple are used to investigate the extent to which constrained revisions can mitigate inefficiencies resulting from contractual incompleteness. An optimal contract is characterized in two cases. First, when a...