Abstract
Recently, Aghion and Bolton (American Economic Review, 1987, 77, 388-401) have shown that liquidated damages can serve as a barrier to entry and may therefore be socially harmful. In this paper I show that liquidated damages remain excessive and continue to serve as a barrier to entry even in the presence of relationship-specific investment, but may nevertheless have an overall positive effect on welfare.
| Original language | English |
|---|---|
| Pages (from-to) | 379-383 |
| Number of pages | 5 |
| Journal | Economics Letters |
| Volume | 45 |
| Issue number | 3 |
| DOIs | |
| State | Published - 1994 |
| Externally published | Yes |