Document Type

Article

Publication Title

Florida State University Law Review

Abstract

This Article extends the law-and-economics literature on the foreseeability doctrine and on contract default rules more generally. It derives (numerically) the optimal default cap on contractual damages in a model with a continuum of buyer types and perfect competition among sellers. When communication costs are low, the optimal cap is significantly higher than the damages incurred by the average buyer. A better performance technology reduces the optimal damages cap. Greater homogeneity among buyers increases the optimal cap. The Article identifies conditions under which an optimally defined foreseeability threshold significantly increases welfare. It also explores the normative implications of the doctrinal preclusion of a zero-damages default.

First Page

619

Volume

33

Publication Date

2006

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