Embedded Options and the Case Against Compensation in Contract Law

IF 3.4 2区 社会学 Q1 LAW
R. Scott, George G. Triantis
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引用次数: 37

Abstract

Despite the fact that compensation is the governing principle in contract law remedies, it has tenuous historical, economic and empirical support. A promisor's right to breach and pay damages (which is subject to the compensation principle) is only a subset of a larger family of termination rights that do not purport to compensate the promisee for losses suffered when the promisor walks away from the contemplated exchange. These termination rights can be characterized as embedded options that serve important risk management functions. We show that sellers often sell insurance to their buyers in the form of these embedded options. We explain why compensation is of little relevance to the option price agreed to by the parties, which is a function of the value of the option to the buyer, its cost to the seller and the market in which they transact. We thus propose a novel justification for why penalty liquidated damages may be higher than seller's costs: they are option prices that reflect the value of the options to the buyer. The regulation of liquidated damages is thus tantamount to price regulation, which is outside the realm of contract law. Moreover, in light of the heterogeneity among optimal option prices, we also make the case against having an expectation damages default rule to begin with. In thick markets, we argue for enforcing the parties ex ante risk allocation with market damages. In thin markets, we propose that parties be induced to agree explicitly with respect to all termination rights, including breach damages, by the threat of specific performance of their contemplated exchange or, in the case of consumers, by a default rule that provides them a termination option at no cost.
嵌入期权与合同法中的赔偿案件
尽管赔偿是合同法救济的主导原则,但它的历史、经济和经验支持都很薄弱。承诺人违约和支付损害赔偿的权利(受赔偿原则的约束)只是一个更大的终止权家族的一个子集,当承诺人离开预期的交易时,承诺人所遭受的损失并没有得到补偿。这些终止权可以被描述为具有重要风险管理功能的嵌入式期权。我们表明,卖方经常以这些嵌入期权的形式向买方出售保险。我们解释了为什么补偿与双方同意的期权价格无关,期权价格是期权对买方的价值、卖方的成本和他们交易的市场的函数。因此,我们提出了一个新的理由来解释为什么违约金可能高于卖方的成本:它们是期权价格,反映了期权对买方的价值。因此,对违约金的监管等同于价格监管,而价格监管不在合同法的范畴之内。此外,鉴于最优期权价格之间的异质性,我们也提出了一个反对期望损害违约规则的案例。在厚市场中,我们主张用市场损害来强制各方事前风险分配。在稀薄的市场中,我们建议各方通过对其预期交易的特定履行的威胁,或在消费者的情况下,通过默认规则为他们提供免费的终止选择权,来诱导各方明确同意所有终止权,包括违约损害赔偿。
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来源期刊
CiteScore
3.00
自引率
6.90%
发文量
0
期刊介绍: The Columbia Law Review is one of the world"s leading publications of legal scholarship. Founded in 1901, the Review is an independent nonprofit corporation that produces a law journal edited and published entirely by students at Columbia Law School. It is one of a handful of student-edited law journals in the nation that publish eight issues a year. The Review is the third most widely distributed and cited law review in the country. It receives about 2,000 submissions per year and selects approximately 20-25 manuscripts for publication annually, in addition to student Notes. In 2008, the Review expanded its audience with the launch of Sidebar, an online supplement to the Review.
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