Unbundling Efficient Breach: An Experiment

Bigoni, Maria ; Bortolotti, Stefania ; Parisi, Francesco ; Porat, Ariel (2016) Unbundling Efficient Breach: An Experiment. Bologna: Dipartimento di Scienze economiche DSE, p. 40. DOI 10.6092/unibo/amsacta/5457. In: Quaderni - Working Paper DSE (1088). ISSN 2282-6483.
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Current law and economics scholarship analyzes efficient breach cases monolithically. The standard analysis holds that breach is efficient when performance of a contract generates a negative total surplus for the parties. However, by simplistically grouping efficient breach cases as of a single kind, the prior literature overlooks that gainseeking breaches might be different from loss-avoiding breaches. To capture these different motives, we designed a novel game called Contract-Breach Game where we exogenously varied the reasons for the breach — pursuing a gain or avoiding a loss — under a specific performance remedy. Results from an incentivized laboratory experiment indicate that the motives behind the breach induce sizable differences in behavior; subjects are less willing to renegotiate when facing gain-seeking than loss-avoiding breaches, and the compensation premium obtained by the promisee is higher. Our analysis suggests that inequality aversion is an important driver of our results; indeed, inequality-averse subjects accept low offers more often in cases of loss-avoiding breaches than gain-seeking breaches. These results give us insight into the preferences and expectations of ordinary people in a case of a breach.

Document type
Monograph (Working Paper)
Bigoni, MariaUniversità di Bologna0000-0001-5988-6115
Bortolotti, StefaniaUniversity of Cologne
Parisi, FrancescoUniversity of Minnesota
Porat, ArielTel-Aviv University
contract damages, efficient breach, motives for breach, Contract-Breach game
Deposit date
07 Dec 2016 09:50
Last modified
08 May 2017 14:32

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