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L&E: expectation damages-slide 70

by matthias on 12 Jun. 2008 14:08 Hi, I‘ve got a question with respect to the positive interest case. We assume that Vt(Third party valuation) is uniformly distributed between 100 and 250. Why would a breach of the initial contract between S and B be efficient in case that the realization of Vt is between 200 and 234? We concluded that B will make the inefficiently high investment in advance and thus increase his valuation to 230. Efficiency is reached by opting for the alternative with maximum agreement rent. So why is it efficient to breach the contract if let‘s say the realization of Vt = 220 (=Pt). Rent (no breach)= 230-100-34=96 Rent (breach)=220-100-34=86 < 96 By the way, could it be that by writing 234 you actually meant 230?( which is B‘s Valuation and hence the compensation c) I hope you can clear up my confusion. Thanks a lot!! Germany!! Web search, Forum search for L&E expectation damages slide