The number and manner of ways Gen. Scales, author of Yellow Smoke:
University of Chicago Law School The party who breaches a contract may be required to make the victim as well off as if the contract had been fulfilled expectation or never signed reliance.
It has been argued that expectation is economically superior because it generates the correct incentive to breach. But damage rules also affect the incentive to sign. March 31, Notes to Web Version 1.
If I were writing the article today, I would take more care to point out that the distinction between expectation and reliance damages is closely related to the problems of moral hazard and adverse selection in insurance.
We solve the problem of moral hazard by making the actor bear the full costs of his acts--as expectation damages makes the breaching party bear the full costs of his breach.
We solve the problem of adverse selection by making the party with the private information fully insure the other party against the risk the information relates to. That way efficient and only efficient transactions take place, since the knowledgable party knows the risks and bears them and the ignorant but insured party does not care what the risks are.
Similarly, under reliance damages, the party with superior knowledge as to the proability that he will wish to breach is insuring the other party--making sure that he is no worse off signing and suffering breach than not signing.
Just as in the insurance case, we have no guarantee that the same rule will optimize on both margins. This article is being posted on the Web with the assent of the Journal of Law and Economics, for which I am grateful. I believe it is very close to identical to the published version.
Introduction I order six gross of customized battens from you, paying in advance. Before the delivery date I call you up and cancel the order. How much of the price should you be obliged to give back to me, and how much are you entitled to keep as compensation for my refusal to fulfill my half of the purchase contract?
More generally, what is the appropriate rule for determining the damages for breach of contract? In discussions of this question, both in the traditional legal and the more recent economic literature, one important issue is whether a buyer who breaches should be required to reimburse the seller for his lost profit.
Put differently, the question is whether the damages should be sufficient to make the seller as well off as he would have been if the buyer had failed to breach "expectation damagesor only as well off as he would have been if the buyer had not purchased in the first place "reliance damages".
He would then be as well off as if the buyer had not breached the contract--he would receive his expectation. Under the latter rule, the seller would figure out how much he had spent so far on producing the battens net of what he could sell them for.
That sum, called his reliance, would be subtracted from what he had been paid, and the remainder returned to the buyer.
The seller, having been compensated for the cost of having the contract made and broken, would be as well off as if the battens had never been ordered. Much of the literature on damage rules for breach of contract argues that an expectation rule leads to an economically more efficient result than does a reliance rule and that damages should therefore include compensation for the seller's lost profits.Information and Information Technology Policy for Security Breaches and Suspected Security Breaches.
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Table 1, a “significant” Nunn-McCurdy breach occurs when the Program Acquisition Unit Cost or the Procurement Unit Cost increases 15% or more over the current baseline estimate or 30% or more over the original baseline estimate. The statistic shows the average organizational cost to business in the United States after a data breach.
In , the average cost to businesses affected by a data breach in the United States. A physician conducting a study on a new prescription drug manufactured by a firm in which he is a 10% shareholder does have a conflict of interest so long as his stock ownership is disclosed in his report on the drug.
CALIFORNIA LAW REVIEW Damages for Breach of Contract Robert Cootert and Melvin Aron Eisenbergl The conventional analysis of contracts holds that the purpose of.