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The classic economic justification of contract law’s default remedy of expectation damages is grounded on the efficient breach hypothesis: that promisors should be permitted and encouraged to breach when the net gains from breach exceed the net gains from performance. Expectation damages ensure that all and only efficient breaches will occur because promisors will find breach profitable only if its benefits exceed the value of performance to the promisee. The efficient breach hypothesis, and the defense of expectation damages that rests on it, has long been criticized for being inconsistent with the moral intuition that promisors necessarily forfeit their right to choose not to perform their promise. In his essay, The Efficient Performance Hypothesis, Richard Brooks claims that the theory of financial options can be used to identify a new contract remedy that respects the promisee’s moral right to performance without sacrificing the efficiency goal served by expectation damages. In this Response, I argue that options theory is irrelevant to the debate Brooks engages, that the moral objection motivating Brooks’s new remedy is itself unmotivated, and that Brooks’s remedy is likely to be less efficient than expectation damages.


Contracts | Law | Legal Remedies