Private Law Theory

ABSTRACT
In contract law, a key question is to what extent a promisor owns the promises performance. The traditional law and economics approach answers this question with the concept of efficient breach. Efficient breach is the concept that promisee is entitled to performance or something of equal value because the promisor has an incentive in some cases to breach the contract. One scenario where an efficient breach may occur is the case of the overbidder scenario. In this scenario, an overbidder arrives after the contract and provides a better offer leading to the incentive for breach of the original promise. Our thesis is that the notion of efficient breach does not exist in the case of the overbidder scenario. If the economic concepts of use and exchange value are invoked, the promisee is owed both use and exchange value in a contract and therefore any overbidder surplus is owed to promisee not promisor.

Scorsone, Eric and Esposito, Fabrizio, The Myth of the Efficient Breach in the Overbid Scenario: Unduly Reducing Expected Performance to Expected Profit (November 8, 2023).