The theory of efficient breach is the best-known and most controversial product of the economic analysis of contract law. In its simplest form, the theory argues that expectation damages are good because they encourage breach when performance is inefficient. Critics commonly focus on the theory’s moral failings and on problems with the neoclassical approach more generally. But today no economic thinker defends the simple theory of efficient breach. This chapter surveys economic arguments against the simple theory. It also argues that contract theorists should nonetheless pay attention to a revised theory of efficient breach. The revised theory suggests that price effects mean that inefficient remedies might raise fairness concerns; that many parties are likely to prefer efficient remedies, posing a challenge to remedial theories that ignore efficiency altogether; and that lawmakers can delegate remedial choice to the parties in ways that still give weight to socially preferred remedies.
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