HW_2.Sp08

HW_2.Sp08 - ECO325 Economics of Law Spring 2008 Homework...

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ECO325: Economics of Law Spring 2008 Homework Assignment #2 Due Date: Friday, February 29 Name:__Joe Brunovsky __________________ Type your answers . Each question is worth 5 points, except for question 4, which is worth 10 points. 1. The two games represent potential contractual relationships. If the promisee cooperates, he will invest 1.0. Non-cooperate (no contract) Player A (promisee) Cooperate (contract) Cooperate Breach 1.0 1.0 -1.0 0 0 1.0 0 0 Player B (promisor) Game 1 Cooperate (contract) Non-cooperate (no contract) Cooperate Breach 1.0 -1.5 1.0 0 0 -1.0 0 0 Player B (promisor) Player A (promisee) Game 2
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a. Which game represents a game in which breach is efficient? Why? Game 1 represents a game in which breach is efficient, because when the breach occurs Player B will get his 1.0 back. However, in game 2 when breach occurs he will loose his 1.0. 2. Answer Question 6.9, p. 217 (6.10, p. 211 in 4 th edition). Use figures 6.5 and 6.6 (6.6 and 6.7 in 4 th edition) in your answer. Compensating the victim of breach for expectation damages causes efficient performance and breach because it sets damages equal to the promisee’s expected gain from performance, give the promisee’s actual level of reliance, regardless of whether it is high or low. In effect, simple expectation damages remove all the risk from reliance, so the promisee always relies to the full extent, even when efficiency requires
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HW_2.Sp08 - ECO325 Economics of Law Spring 2008 Homework...

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