Impressum |  Kontakt 
Siegel der Universität

Universität zu Köln
Wirtschafts- und Sozialwissenschaftliche Fakultät

Staatswissenschaftliches Seminar - Prof. Schmitz

How (Not) to Purchase Novel Goods and Services: Specific Performance Versus At-Will Contracts

Patrick W. Schmitz

Economic Journal, Vol. 132 (647), 2022, 2563–2577.

Abstract. A buyer wants to purchase an innovative good from a seller. Both parties are risk-neutral, and payments from the buyer to the seller must be non-negative. After the contract is signed, the seller privately observes a signal, which may be informative about the seller`s costs. We compare two contracting regimes. In the case of specific performance, the courts enforce the trade level specified in the contract. In the case of at-will contracting, the seller is free to walk away from the contract after the signal has been realized. While the buyer prefers specific performance and the seller prefers at-will contracting, the optimal regime from an economic efficiency point-of-view depends on the informativeness of the signal.

The working paper version is available for download (CEPR Discussion Paper 17109).

The paper is available for download.