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Selected Works

1996

Economic Theory

Articles 1 - 2 of 2

Full-Text Articles in Social and Behavioral Sciences

Cadillac Contracts And Up-Front Payments: Efficient Investment Under Expectation Damages, Aaron S. Edlin Mar 1996

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.

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Nonsubstitution Theorems For A Small Trading Country, Ted Bergstrom Dec 1995

Nonsubstitution Theorems For A Small Trading Country, Ted Bergstrom

Ted C Bergstrom

In 1951, Paul Samuelson showed that a surprisingly rich class of economies the production possibility frontier is a linear and even with neoclassical substitution possibilities, as outputs adjust, firms continue to use inputs and outputs in the same proportions. This model is often thought to be of limited practical value since it assumes that there is only one non-produced factor, and no joint production. The single factor assumption rules out economies in which agriculture and mining are important and the lack of joint production leaves no good way to handle durable capital goods. In this paper, I extend the Samuelson …

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