Rethinking the Economic Characteristics of the Major Contractual Damage Measures

We clarify the conventional claims concerning the most popular damage measures: expectation damages (ED), constant damages (CD), and reliance damages (RD). We strictly examine strategies versus outcomes in equilibrium and make several new investigations. In terms of equilibrium outcomes, we obtain results that contrast with the existing claims. The main results are: First, ED always results in overperformance. Second, CD, in general, does not guarantee efficient reliance. Third, overbreach need not be realized under RD. Overall, this paper also shows that simultaneity in contract games is more important than has been traditionally supposed in the literature.