Those Crazy Transaction Costs: On the Irrelevance of the Equivalence between Monetary Damages and Specific Performance

8 Pages Posted: 25 Jul 2011

See all articles by Gregory J. DeAngelo

Gregory J. DeAngelo

Claremont Colleges - Claremont Graduate University

Steven G. Medema

Duke University - Department of Economics

Date Written: July 24, 2011

Abstract

The Coase theorem tells us that monetary damages and specific performance remedies for breach of contract have identical effects when transaction costs are zero. This has become a standard part of the literature on the economics of contract law. This note argues that the traditional view is somewhat misguided, as monetary damages and specific performance remedies are unnecessary in a zero transaction costs world. We go on to show how the presence of transaction costs impact the decisions of contracting parties as between the inclusion of liquidated damages clauses in contracts and resorting to litigation that could result in the application of either monetary damages or specific performance remedies.

Keywords: Coase Theorem, Specific Performance, Monetary Damages

JEL Classification: K41, K12

Suggested Citation

DeAngelo, Gregory Joseph and Medema, Steven G., Those Crazy Transaction Costs: On the Irrelevance of the Equivalence between Monetary Damages and Specific Performance (July 24, 2011). Available at SSRN: https://ssrn.com/abstract=1894088 or http://dx.doi.org/10.2139/ssrn.1894088

Gregory Joseph DeAngelo (Contact Author)

Claremont Colleges - Claremont Graduate University ( email )

150 E. Tenth Street
Claremont, CA 91711
United States

Steven G. Medema

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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