Damage Measures for Breach of Contract
Volume: Volume 11, No. 2
Issue: Autumn 1980
Pages: pp. 466-490
Authors: Steven Shavell
Title: Damage Measures for Breach of Contract
Abstract: This article studies rules of "damage measures" that determine how much money must be paid by a party who defaults on a contract to the other party to the contract. The theme of the article is that damage measures serve as a substitute for completely specified contracts. In particular, it is shown that under an incompletely specified contract damage measures can induce parties to behave in a way that approximates what they would have explicitly agreed upon under a fully specified contract. Moreover, it is argued on familiar lines that because it is often costly or impossible to make contractual provisions for contingencies at a very detailed level, there is an evident need for such substitutes for well-specified contingent contracts as are afforded by damage measures
JEL Classification
Economics of Law and Crime (9160)