Chapter 10 - Concluding Remarks and Policy Recommendations

Summary

In the beginning of this chapter, a brief summary of the entire thesis is provided. After restating the subject question as well as the basic presumptions (section 1.1), this chapter summarizes what has been discussed and found by each chapter. Implications and policy recommendations will be formulated next (section 2). It is recognized that this thesis has many limitations as well, such as its lack of empirical statistics, ignorance of other types of contracts, and an insufficient consideration of legal rules beyond contract law (section 3).

Summary

Summary of Research Questions

The doctrine of efficient breach is grounded on an assumption that actors are economically rational and their acts are motivated primarily by economic profit. This is particularly the case in commercial sales where both of the parties are businessmen whose acts are to a large degree driven by economic concerns. As a result, they will perform the contract only when theeconomicsurplusofperformanceislargerthanthatofbreach. Economists have also been aware that every actor has limited rationality and foresight. Within a context where transaction costs are unavoidable, it is either impossible or too costly for people to consider every potential contingency that might arise within their on-going transactions. In the absence of perfect and complete contracts in addition to a well operating market mechanism, there is a possibility that people may choose non-cooperation such as opportunism which may decrease social welfare. This creates a demand for contract law. It is assumed that the introduction of contract law may alter people's incentives by switching a non-cooperating relationship into a cooperating relationship. Against this background, law and economic scholars have come up with their theory of efficient breach. According to this theory, legal rules should align trading parties’ incentives with the social welfare and more particularly shape people's incentives to breach only when it is efficient to do so. An important mechanism for adjusting people's incentives to perform and breach a contract refers to remedy rules which may increase the cost of breach. The remedy of expectation damages is considered to be able to accomplish this goal best since it prices a breach at a reasonable level. The damages paid by a breacher will put the non-breaching party in the position that he would enjoy as if the contract had been performed.