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Dynamic Contract Breach Fan Zhang, EAG 08-3, March 2008 Abstract: Furthermore, it is shown that if the seller may be able to .nd an alternate buyer when breach occurs early but not when breach occurs late, the amount by which the damage for late breach exceeds the damage for early breach is increasing in the probability of .nding an alternate buyer. (This result may explain why some hotels impose larger penalties for last-minute cancellations during the high season than during the low season.)
When the probability of .nding an alternate buyer is endogenized, the seller's private incentive
to mitigate breach damages is shown to be socially insu.cient whenever she does not have complete
bargaining power with the alternate buyer. Finally, if renegotiation is possible after the arrival of each
perfectly competitive entrant, the e.cient breach and investment decisions are shown to be implementable
with the same e.cient expectation damages that implement the e.cient outcomes absent renegotiation. Policies and Disclaimers Privacy Accessibility Department of Justice USA.gov
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