Timing Problems in Contract Breach Decisions

In contracts susceptible to efficient breach, each party has an American option to breach and pay damages rather than perform. She will repudiate early if the expected decrease in damages liability resulting from her partner's mitigation exceeds the expected value of the terminated contract, in...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of law & economics 1998-04, Vol.41 (1), p.163-208
Main Authors: Triantis, Alexander J, Triantis, George G
Format: Article
Language:English
Subjects:
Breach of contract
Contract law
Contracts
Damage claims
Decision Making
Economic models
Efficiency
Expected values
Law
Options markets
Studies
United States
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
cited_by cdi_FETCH-LOGICAL-c343t-81449ecde4ea6dada0224a2a3e6e4943fad2ea1d8fae081bf5cb38d7139ca9123
cites
container_end_page 208
container_issue 1
container_start_page 163
container_title The Journal of law & economics
container_volume 41
creator Triantis, Alexander J
Triantis, George G
description In contracts susceptible to efficient breach, each party has an American option to breach and pay damages rather than perform. She will repudiate early if the expected decrease in damages liability resulting from her partner's mitigation exceeds the expected value of the terminated contract, including the option to breach in the future. It is shown that each party has the incentive to repudiate earlier than socially optimal because expectation damages compensate the nonrepudiating party only for the loss of the completed exchange and not the value of its lost breach option. This inefficiency is particularly acute in long-term, fixed-price contracts in which the cost of performance to the promisor and the value to the promisee are volatile and uncorrelated. A study explores various responses to this problem, including vertical integration, changes in contract remedies, flexible price provisions, and the capital structure of each party.
doi_str_mv 10.1086/467388
format article
fullrecord <record><control><sourceid>proquest_cross</sourceid><recordid>TN_cdi_proquest_miscellaneous_61236368</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><sourcerecordid>29781965</sourcerecordid><originalsourceid>FETCH-LOGICAL-c343t-81449ecde4ea6dada0224a2a3e6e4943fad2ea1d8fae081bf5cb38d7139ca9123</originalsourceid><addsrcrecordid>eNpdkD9PwzAUxC0EEqXAZ4gYmAj42Y7jjNDyT6oEQ5mtF-cFXCVxsdOBb09QkZC45Zaf7k7H2Dnwa-BG3yhdSmMO2AwKWeaFMMUhm3EuRC7A6GN2ktKGT1KVmrGrte_98J69xlB31KfMD9kiDGNEN2Z3kdB9ZEtyPvkwpFN21GKX6OzX5-zt4X69eMpXL4_Pi9tV7qSSY25AqYpcQ4pQN9jg1K1QoCRNU6lssRGE0JgWiRuo28LV0jQlyMphBULO2eU-dxvD547SaHufHHUdDhR2yeqJ0VKbCbz4B27CLg7TNguVVgCyLP_SXAwpRWrtNvoe45cFbn8es_vH5DeF5Fur</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>196411377</pqid></control><display><type>article</type><title>Timing Problems in Contract Breach Decisions</title><source>International Bibliography of the Social Sciences (IBSS)</source><source>Nexis UK</source><source>University of Chicago Press Journals (Full run)</source><source>JSTOR Archival Journals and Primary Sources Collection</source><source>Worldwide Political Science Abstracts</source><creator>Triantis, Alexander J ; Triantis, George G</creator><creatorcontrib>Triantis, Alexander J ; Triantis, George G</creatorcontrib><description>In contracts susceptible to efficient breach, each party has an American option to breach and pay damages rather than perform. She will repudiate early if the expected decrease in damages liability resulting from her partner's mitigation exceeds the expected value of the terminated contract, including the option to breach in the future. It is shown that each party has the incentive to repudiate earlier than socially optimal because expectation damages compensate the nonrepudiating party only for the loss of the completed exchange and not the value of its lost breach option. This inefficiency is particularly acute in long-term, fixed-price contracts in which the cost of performance to the promisor and the value to the promisee are volatile and uncorrelated. A study explores various responses to this problem, including vertical integration, changes in contract remedies, flexible price provisions, and the capital structure of each party.</description><identifier>ISSN: 0022-2186</identifier><identifier>EISSN: 1537-5285</identifier><identifier>DOI: 10.1086/467388</identifier><identifier>CODEN: JLLEA7</identifier><language>eng</language><publisher>Chicago: University of Chicago Law School</publisher><subject>Breach of contract ; Contract law ; Contracts ; Damage claims ; Decision Making ; Economic models ; Efficiency ; Expected values ; Law ; Options markets ; Studies ; United States</subject><ispartof>The Journal of law &amp; economics, 1998-04, Vol.41 (1), p.163-208</ispartof><rights>Copyright University of Chicago Law School Apr 1998</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c343t-81449ecde4ea6dada0224a2a3e6e4943fad2ea1d8fae081bf5cb38d7139ca9123</citedby></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>314,780,784,27924,27925,33223</link.rule.ids></links><search><creatorcontrib>Triantis, Alexander J</creatorcontrib><creatorcontrib>Triantis, George G</creatorcontrib><title>Timing Problems in Contract Breach Decisions</title><title>The Journal of law &amp; economics</title><description>In contracts susceptible to efficient breach, each party has an American option to breach and pay damages rather than perform. She will repudiate early if the expected decrease in damages liability resulting from her partner's mitigation exceeds the expected value of the terminated contract, including the option to breach in the future. It is shown that each party has the incentive to repudiate earlier than socially optimal because expectation damages compensate the nonrepudiating party only for the loss of the completed exchange and not the value of its lost breach option. This inefficiency is particularly acute in long-term, fixed-price contracts in which the cost of performance to the promisor and the value to the promisee are volatile and uncorrelated. A study explores various responses to this problem, including vertical integration, changes in contract remedies, flexible price provisions, and the capital structure of each party.</description><subject>Breach of contract</subject><subject>Contract law</subject><subject>Contracts</subject><subject>Damage claims</subject><subject>Decision Making</subject><subject>Economic models</subject><subject>Efficiency</subject><subject>Expected values</subject><subject>Law</subject><subject>Options markets</subject><subject>Studies</subject><subject>United States</subject><issn>0022-2186</issn><issn>1537-5285</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1998</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><sourceid>7UB</sourceid><recordid>eNpdkD9PwzAUxC0EEqXAZ4gYmAj42Y7jjNDyT6oEQ5mtF-cFXCVxsdOBb09QkZC45Zaf7k7H2Dnwa-BG3yhdSmMO2AwKWeaFMMUhm3EuRC7A6GN2ktKGT1KVmrGrte_98J69xlB31KfMD9kiDGNEN2Z3kdB9ZEtyPvkwpFN21GKX6OzX5-zt4X69eMpXL4_Pi9tV7qSSY25AqYpcQ4pQN9jg1K1QoCRNU6lssRGE0JgWiRuo28LV0jQlyMphBULO2eU-dxvD547SaHufHHUdDhR2yeqJ0VKbCbz4B27CLg7TNguVVgCyLP_SXAwpRWrtNvoe45cFbn8es_vH5DeF5Fur</recordid><startdate>19980401</startdate><enddate>19980401</enddate><creator>Triantis, Alexander J</creator><creator>Triantis, George G</creator><general>University of Chicago Law School</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><scope>K7.</scope><scope>7UB</scope></search><sort><creationdate>19980401</creationdate><title>Timing Problems in Contract Breach Decisions</title><author>Triantis, Alexander J ; Triantis, George G</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c343t-81449ecde4ea6dada0224a2a3e6e4943fad2ea1d8fae081bf5cb38d7139ca9123</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1998</creationdate><topic>Breach of contract</topic><topic>Contract law</topic><topic>Contracts</topic><topic>Damage claims</topic><topic>Decision Making</topic><topic>Economic models</topic><topic>Efficiency</topic><topic>Expected values</topic><topic>Law</topic><topic>Options markets</topic><topic>Studies</topic><topic>United States</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Triantis, Alexander J</creatorcontrib><creatorcontrib>Triantis, George G</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><collection>ProQuest Criminal Justice (Alumni)</collection><collection>Worldwide Political Science Abstracts</collection><jtitle>The Journal of law &amp; economics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Triantis, Alexander J</au><au>Triantis, George G</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Timing Problems in Contract Breach Decisions</atitle><jtitle>The Journal of law &amp; economics</jtitle><date>1998-04-01</date><risdate>1998</risdate><volume>41</volume><issue>1</issue><spage>163</spage><epage>208</epage><pages>163-208</pages><issn>0022-2186</issn><eissn>1537-5285</eissn><coden>JLLEA7</coden><abstract>In contracts susceptible to efficient breach, each party has an American option to breach and pay damages rather than perform. She will repudiate early if the expected decrease in damages liability resulting from her partner's mitigation exceeds the expected value of the terminated contract, including the option to breach in the future. It is shown that each party has the incentive to repudiate earlier than socially optimal because expectation damages compensate the nonrepudiating party only for the loss of the completed exchange and not the value of its lost breach option. This inefficiency is particularly acute in long-term, fixed-price contracts in which the cost of performance to the promisor and the value to the promisee are volatile and uncorrelated. A study explores various responses to this problem, including vertical integration, changes in contract remedies, flexible price provisions, and the capital structure of each party.</abstract><cop>Chicago</cop><pub>University of Chicago Law School</pub><doi>10.1086/467388</doi><tpages>46</tpages></addata></record>
fulltext fulltext
identifier ISSN: 0022-2186
ispartof The Journal of law & economics, 1998-04, Vol.41 (1), p.163-208
issn 0022-2186
1537-5285
language eng
recordid cdi_proquest_miscellaneous_61236368
source International Bibliography of the Social Sciences (IBSS); Nexis UK; University of Chicago Press Journals (Full run); JSTOR Archival Journals and Primary Sources Collection; Worldwide Political Science Abstracts
subjects Breach of contract
Contract law
Contracts
Damage claims
Decision Making
Economic models
Efficiency
Expected values
Law
Options markets
Studies
United States
title Timing Problems in Contract Breach Decisions
url http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2024-12-29T09%3A07%3A09IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-proquest_cross&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Timing%20Problems%20in%20Contract%20Breach%20Decisions&rft.jtitle=The%20Journal%20of%20law%20&%20economics&rft.au=Triantis,%20Alexander%20J&rft.date=1998-04-01&rft.volume=41&rft.issue=1&rft.spage=163&rft.epage=208&rft.pages=163-208&rft.issn=0022-2186&rft.eissn=1537-5285&rft.coden=JLLEA7&rft_id=info:doi/10.1086/467388&rft_dat=%3Cproquest_cross%3E29781965%3C/proquest_cross%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c343t-81449ecde4ea6dada0224a2a3e6e4943fad2ea1d8fae081bf5cb38d7139ca9123%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=196411377&rft_id=info:pmid/&rfr_iscdi=true