If a seller delivers a good non-conforming to contract, European and US warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use non-conformity as a pretext for getting rid of a...

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling 'expectation damages' close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to...

Easy availability of rescission followed by restitution has, for centuries, unsettled legal authorities, who fear it as a threat to commercial order or other normative values. Responding to these fears, authorities have limited the ease with which rescission may be elected. Their approach is...

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety lurk two fundamental alternatives. The aggrieved party may (i) “affirm” the contract and seek money damages or specific performance; or...

We show that parties in bilateral trade can rely on the default common law breach remedy of 'expectation damages' to induce simultaneously first-best relationship-specific investments of both the selfish and the cooperative kind. This can be achieved by writing a contract that specifies a...

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety lurk two fundamental alternatives. The aggrieved party may (i) 'affirm' the contract and seek money damages or specific performance; or...

We obtain laboratory evidence that suggests that (i) promisors are more likely to keep promises the more they were relied upon by a promisee; (ii) this effect is anticipated by promisees, who accordingly strategically overinvest to lock promisors into keeping their promises (“psychological...