Efficient Reliance and Contract Remedies

Parties to a contract often must engage in expenditures prior to the performance of the contract to either prepare for or make use of the performance of the contract. Legal institutions provide for contract enforcement either by specifically enforcing contractually specified actions or by requiring that the breacher pay the breachee an amount of money called damages. This paper analyzes the impact of varying the enforcement institution on the incentives to rely. An unambiguous ranking of specific performance and five damage measures are obtained in terms of efficiency of the reliance decision.