Economic analysis of contractual breach sanctions

The conclusion of any contract aims at implementation of the obligations arising from it. Morality dictates that people adhere to what they assumed regarding others. The law also supported the moral judgment and in case of breach of obligations to oblige, compensation as a sanction is imposed on obligor. In view of the economic analysis, he also committed to respect his contract and the Contract shall be performed contrary to the intention of breaching party, and on both sides the effectiveness is motivated to build trust and to maximize contract efficiency. Typically there are two basic solutions in compensation for breach of contract. First, the obligation of obligator to perform obligation, secondly, payment of damages for non-performance, either by the parties in the form of penalty clause or by the court to refer the matter to the expert identified and they are required to pay it. In choosing one of these, economic perspective considers the economic benefits of each of these two solutions. If so economic benefit in cases where subjective commitment and intellectual damage on the implementation of the commitment, as compensation for these losses not compensated correctly, and basically cannot be estimated. In second view, sentence in view of the compensation usually refers to material damages or economic damages, in such cases compensation for losses caused to the obligee can be compensated better and more efficient method is considered. Finally, it must be borne in mind that the purpose of signing the contract because is its implementation and in cases where the performance of contractual obligations under changed circumstances faced hardships, the elimination of obstacles to the implementation of the contract will be resolved, it seems to modify the contract as a mechanism for the implementation of the contract must be considered unless they agreed to be imposed on them by law or judicial authority. In this case, unless the modification is done by mutual consent, it is modification by legal and judicial means economically, we’ll see how the parties to the agreement have wanted to do risk allocation or choose the more efficient ones, that is, which party can a lower cost can bear the risk of changing circumstances and consider same party responsible for it.