Law and Economics-Charles W. Upton More on Remedies

The Waffle Shop Yvonne owns a waffle shop. She wants to expand the shop and contracts with Xavier for an addition to be ready at the start of the school year.

More on Remedies The Waffle Shop Yvonne owns a waffle shop. She wants to expand the shop and contracts with Xavier for an addition to be ready at the start of the school year. –Xavier has a problem. The more he spends on precaution, the greater the probability of the job being done.

More on Remedies The Waffle Shop Yvonne owns a waffle shop. She wants to expand the shop and contracts with Xavier for an addition to be ready at the start of the school year. –But Yvonne also has a problem. She faces two revenue functions for September, depending on how much food she orders and whether Xavier is finished on time.

More on Remedies Assumptions X = Xavier’s expenditures on precaution Y = Amount of food Yvonne orders. R not (y) = Yvonne’s revenue function, not ready R ready (y) = Yvonne’s revenue function, ready P(x) = Probability of facility being ready

More on Remedies The correct problem to solve is to choose x and y to maximize p(x)R ready (y) + (1-p(x))R not (y) - y - x

More on Remedies The correct problem to solve is to choose x and y to maximize p(x)R ready (y) + (1-p(x))R not (y) - y - x

More on Remedies The correct problem to solve is to choose x and y to maximize p(x)R ready (y) + (1-p(x))R not (y) - y - x

More on Remedies The correct problem to solve is to choose x and y to maximize p(x)R ready (y) + (1-p(x))R not (y) - y - x

More on Remedies The correct problem to solve is to choose x and y to maximize p(x)R ready (y) + (1-p(x))R not (y) - y - x and that problem has a solution

More on Remedies p(x)R ready (y) + (1-p(x))R not (y) - y – x p’(x) [ R ready (y) - R not (y) ] - 1 = 0 p(x)R’ ready (y)+ (1-p(x))R’ not (y) -1 = 0

More on Remedies p(x)R ready (y) + (1-p(x))R not (y) - y – x p’(x) [ R ready (y) - R not (y) ] - 1 = 0 p(x)R’ ready (y)+ (1-p(x))R’ not (y) -1 = 0 Let x* and y* be the optimal levels

More on Remedies If his damages are R ready (y*) - R not (y*) Xavier will minimize P(x) [R ready (y*) - R not (y*)]-x and come to the right solution Xavier

More on Remedies If her compensation is R ready (y*) - R not (y*) She will maximize p(x)R ready (y) + (1-p(x))R not (y) – y + [1-p(x)] [R ready (y*) - R not (y*)] and come to the right solution Yvonne

More on Remedies Conclusion Use perfect expectation damages assuming reasonable reliance. If –You can measure reasonable reliance Else people get interested in other alternatives

More on Remedies The Chart Can you measure expectation damages assuming reasonable reliance accurately? Yes Do it No Alternatives

More on Remedies Alternatives Can you measure opportunity cost damages assuming reasonable reliance accurately? Yes Do it No Alternatives

More on Remedies Alternatives Can you measure reliance damages assuming reasonable reliance accurately? Yes Do it No Alternatives

More on Remedies Alternative Damages Restitution Disgorgement Liquidated Damages –Contract-specified damages Specific Performance

More on Remedies Alternative Damages Restitution Disgorgement Liquidated Damages –Contract-specified damages Specific Performance

More on Remedies Alternative Damages Restitution Disgorgement Liquidated Damages –Contract-specified damages Specific Performance

More on Remedies Alternative Damages Restitution Disgorgement Liquidated Damages –Contract-specified damages Specific Performance

More on Remedies Alternative Damages Restitution Disgorgement Liquidated Damages –Contract-specified damages Specific Performance

More on Remedies End ©2004 Charles W. Upton