Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 2 of 2
Full-Text Articles in Law
Cadillac Contracts And Up-Front Payments: Efficient Investment Under Expectation Damages, Aaron S. Edlin
Cadillac Contracts And Up-Front Payments: Efficient Investment Under Expectation Damages, Aaron S. Edlin
Aaron Edlin
This article shows that up-front payments can eliminate the overinvestment effect identified by Shavell (1980), by controlling which party breaches a contract. At the same time, "Cadillac" contracts (contracts for a very high quality or quantity) can protect against underinvestment due to Williamsonian holdups. This combination provides efficient investment incentives when courts use expectation damages as a remedy for breach. The expectation damages remedy is therefore well-suited to multidimensional but one-sided investment problems, in contrast to specific performance, which is well-suited to two-sided but unidimensional investment problems.
Two-Part Marginal Cost Pricing Equilibria With N Firms: Sufficient Conditions For Existence And Optimality, Aaron S. Edlin, Mario Epelbaum
Two-Part Marginal Cost Pricing Equilibria With N Firms: Sufficient Conditions For Existence And Optimality, Aaron S. Edlin, Mario Epelbaum
Aaron Edlin
We explore the interactions among firms with increasing returns regulated to break even by pricing with two-part tariffs. We provide conditions for existence and for efficiency of general equilibria with n-firms. This involves finding hookup fees that are voluntarily paid and cover the firms' losses from marginal cost pricing-a problem that because of both substitution and income effects is complicated by multiple firms using two-part tariffs, but that must be solved to ensure the continuity of demands necessary to prove break-even equilibria exist.