ABSTRACT
This paper explores the optimal default configuration of the promisee’s duty of cooperation in situations where the promisee’s role in the performance of a contract is not merely passive but can actively affect the probability of performance. This paper contributes to the law and economics literature (Cooter & Porat, 2004; Porat, 2009) by analyzing how remedies can be designed to incentivize optimal cooperation without undermining the promisor’s performance obligations. We show that standard expectation damages fail to align incentives for both parties and that introducing discontinuities in the damages rule is necessary to induce efficient effort and cooperation. Extending the analysis to post-contractual changes in circumstances, we propose a novel ‘duty of compensated cooperation’, which ties breach damages to the promisee’s level of cooperation and requires the promisor to reimburse any additional cooperation costs caused by unforeseen changes. This mechanism preserves optimal incentives in the face of shocks by inducing adaptive adjustments in the parties’ behavior. Finally, we show that supplementing this rule with disgorgement damages can generate a separating equilibrium: promisors seek increased cooperation only in response to exogenous shocks, not from opportunistic, self-induced changes.
Luppi, Barbara and Parisi, Francesco and Pietro Matina, Dario and Santese, Piergiorgio, Promisee’s Duty of Cooperation (April 25, 2025), Minnesota Legal Studies Research Paper No 25-28.
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