If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic...

When investments are nonverifiable, 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 lower...

We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other...

Promising serves as an important commitment mechanism by operating on a potential cheater’s internal value system. We present experimental evidence on what motivates people to keep their promises. First, they feel that they are duty-bound to keep their promises regardless of whether promisees...

We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other...

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...