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German Working Papers in Law and Economics
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Volume 2003

AUTHOR:
Urs Schweizer

TITLE:
Cooperative Investments Induced by Contract Law

SUGGESTED CITATION:
Urs Schweizer (2003) "Cooperative Investments Induced by Contract Law", German Working Papers in Law and Economics: Vol. 2003: Article 25.
http://www.bepress.com/gwp/default/vol2003/iss1/art25


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ABSTRACT:

This paper revisits the economic analysis of contract law for a setting of cooperative investments. While Che and Chung (1999) have shown that expectation damages perform rather poorly, the present paper argues that this negative result follows from their impicit assumption of unilateral expectation damages. Yet, the very nature of cooperative investments gives rise to the possibility that both parties may claim expectation damages. It is shown that such a regime of bilateral expectation damages provides the incentives for the first best solution even in a framework of binary choice where, for selfish investments, the traditional overreliance result would hold.




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