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Editing Contracts/Efficient breach
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The first statement of the theory of efficient breach appears to have been made in 1970 in a [[law review]] article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency".<ref>24 Rutgers L.Rev. 273, 284 (1970) ("Repudiation of obligations should be encouraged where the promisor is able to profit from his default after placing his promisee in as good a position as he would have occupied had performance been rendered.").</ref> The theory was named seven years later by Charles Goetz and Robert Scott.<ref>"Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach", 77 Colum.L.Rev. 554 (1977).</ref> Efficient breach theory is commonly associated with [[Richard Posner]] and the [[Law and Economics]] school of thought. Posner explains his views in his majority opinion in ''[[Lake River Corp. v. Carborundum Co.]]'', 769 F.2d 1284 (7th Cir. 1985). | The first statement of the theory of efficient breach appears to have been made in 1970 in a [[law review]] article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency".<ref>24 Rutgers L.Rev. 273, 284 (1970) ("Repudiation of obligations should be encouraged where the promisor is able to profit from his default after placing his promisee in as good a position as he would have occupied had performance been rendered.").</ref> The theory was named seven years later by Charles Goetz and Robert Scott.<ref>"Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach", 77 Colum.L.Rev. 554 (1977).</ref> Efficient breach theory is commonly associated with [[Richard Posner]] and the [[Law and Economics]] school of thought. Posner explains his views in his majority opinion in ''[[Lake River Corp. v. Carborundum Co.]]'', 769 F.2d 1284 (7th Cir. 1985). | ||
Simple versions of the efficient breach theory employed arguments from [[welfare economics]], operating on the premise that legal rules should be designed to give parties an incentive to act in ways that maximize aggregate welfare or achieve [[Pareto efficiency]]. More sophisticated versions of the theory maintain that parties themselves prefer remedies that incentivize efficient breach, as efficient breach maximizes the gains of trade from transacting. As Richard Posner and Andrew Rosenfeld put the point, "the more efficiently the exchange is structured, the larger is the potential profit of the contract for the parties to divide between them."<ref>Richard A. Posner & Andrew M. Rosenfeld, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83, 89 (1977).</ref> | Simple versions of the efficient breach theory employed arguments from [[welfare economics]], operating on the premise that legal rules should be designed to give parties an incentive to act in ways that maximize aggregate welfare or achieve [[Pareto efficiency]]. More sophisticated versions of the theory maintain that parties themselves prefer a remedies that incentivize efficient breach, as efficient breach maximizes the gains of trade from transacting. As Richard Posner and Andrew Rosenfeld put the point, "the more efficiently the exchange is structured, the larger is the potential profit of the contract for the parties to divide between them."<ref>Richard A. Posner & Andrew M. Rosenfeld, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83, 89 (1977).</ref> | ||
== Posner's illustration == | == Posner's illustration == |