ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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1. The technology of interaction for a contractual relationship is given by the matrix
below.
2
H
L
1
H
5,5
0,8
L
7,0
1,1
Suppose the players write an incomplete contract stating that they agree to play
the jointly-efficient outcome (that which maximizes the joint payoff as found in last
week's homework). Assume that the court can verify exactly the outcome of produc-
tion.
(a) Suppose that the court uses expectation damages. Can the jointly-
efficient outcome be implemented? Briefly explain.
(b) Suppose that the court uses reliance damages. Can the jointly-efficient
outcome be implemented? Briefly explain.
(c) Suppose that the court uses restitution. Can the jointly-efficient out-
come be implemented? Briefly explain.
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Transcribed Image Text:1. The technology of interaction for a contractual relationship is given by the matrix below. 2 H L 1 H 5,5 0,8 L 7,0 1,1 Suppose the players write an incomplete contract stating that they agree to play the jointly-efficient outcome (that which maximizes the joint payoff as found in last week's homework). Assume that the court can verify exactly the outcome of produc- tion. (a) Suppose that the court uses expectation damages. Can the jointly- efficient outcome be implemented? Briefly explain. (b) Suppose that the court uses reliance damages. Can the jointly-efficient outcome be implemented? Briefly explain. (c) Suppose that the court uses restitution. Can the jointly-efficient out- come be implemented? Briefly explain.
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