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Journal Article

Damage Measures for Breach of Contract

Steven Shavell
The Bell Journal of Economics
Vol. 11, No. 2 (Autumn, 1980), pp. 466-490
Published by: RAND Corporation
DOI: 10.2307/3003374
Stable URL: http://www.jstor.org/stable/3003374
Page Count: 25
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Damage Measures for Breach of Contract
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Abstract

This article studies rules or "damage measures" that determine how much money must be paid by a party who defaults on a contract to the other party to the contract. The theme of the article is that damage measures serve as a substitute for completely specified contracts. In particular, it is shown that under an incompletely specified contract, damage measures can induce parties to behave in a way that approximates what they would have explicitly agreed upon under a fully specified contract. Moreover, it is argued on familiar lines that because it is often costly or impossible to make contractual provisions for contingencies at a very detailed level, there is an evident need for such substitutes for well-specified contingent contracts as are afforded by damage measures.

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