ECO320Y5 Study Guide - Final Guide: Coase Theorem, Pareto Efficiency, Expectation Damages
Document Summary
Contract law: enable people to cooperate by converting non- cooperative games ( prisoner"s dilemma) into a cooperative game. Most important enforceable contracts that parties know are enforceable solves prisoner dilemma situations: efficient information disclosure. Proper design of the icc for agents ensures performance. Accomplished by the expectation damages rule: secure optimal reliance. Agents should be motivated by contract to perform. Principals should not over rely for an inefficient gain or an excessive loss from a breach in contract: minimize transaction costs of negotiating contracts. Terms such as what a party should pay another party if a breached contract exists , allowing incomplete contracts to perform is pareto optimal: foster lt relationships. Multi-period contract game helps counteract prisoner dilemma issues. Is a remedy assigned to owner of a property that allows the owner to obtain damages ( or injunction against) a polluter of this property. Polluter knows this therefore will internalize the externality as a cost and adjust production accordingly.
