ECO320Y5 Lecture Notes - Lecture 7: Expectation Damages, Default Rule, Bargaining
Document Summary
Critical aspects of contracts: optimize joint welfare, stackelberg (first-mover) process, model for solving the prisoners dilemma, voluntary, long term contracts afford more opportunities for reward and punishment, immediately for effective rewards and punishments. One purpose of contract law is to enable people to cooperate by converting games with non-cooperative solutions into games with cooperative solutions. A further purpose of contract law is to minimize transaction cost of negotiating contracts by supplying efficient default terms and regulations. Insert a express warranty in the contract that asserts if the buyer is dissatisfied the good will be repaired or replaced. Insert a condition in the contract permitting the buyer optimal inspection opportunity. Efficient courts the further the case departs from perfect rationality and zero (0) transaction costs the stronger the need for judicial intervention the default rules of contract law. Another purpose of contract law is to secure optimal reference.
