Damages in Multi-agent Contracts

Even though various forms of multilateral contracts could be found in our life, existing studies are analyzed the effect of damages on the assumption of that contracts are all bilateral. In this paper, we particularly consider a multi-agent contract case such that one principal makes two independent contracts with two independent agents. We re-evaluate the performances of ED (expectation damages), RD (reliance damages), and HED (hypothetical ED) in such multi-agent contracts, and find some different results from those in a standard bilateral contract case a follows: 1) ED induces over-performance rather than optimal performance, 2) HED induces both over-reliance from the buyer and over-performance from the sellers. For the extension, we also generalize our analysis to the cases that the number of agent is greater than two.