The Role of Economic Analysis of the Subject Matter of the Transaction in Determining and Ensuring the Efficiency of Remedies

Abstract

Economic analysis of the subject matter of the transaction, in determining and ensuring the efficiency of remedies, refers to the evaluation of the economic value and characteristics of the contractual object in order to design legal safeguards in a manner that optimizes the behavior of the parties and ensures the efficient allocation of resources. This article was developed using a descriptive–analytical method with the aim of examining the role of economic analysis in explaining and adjusting remedies for breach of contract and its relationship with the theory of the expected contractual position. The findings indicate that specific performance obligations and traditional remedies, in many instances, are not aligned with the economic objectives of contracts, particularly in commercial and international agreements, and may result in resource waste and reduced efficiency. The theory of the expected contractual position, by emphasizing the realization of the obligee’s utility through the contractual position—whether through performance in kind or its equivalent—facilitates the reduction of compulsory delivery of a specific object and highlights the position of the obligee in achieving the expected position and mitigating damages. The study of the concepts of loss and damages resulting from breach of contract demonstrates that the mitigation of damages rule is also economically justified, and the obligee is required, following a breach of contract, to take reasonable measures to prevent the aggravation of damages. Furthermore, the analysis of expectation damages, which aims to place the injured party in the position they would have occupied had the contract been performed, is consistent with the theory of the expected contractual position and contributes to reducing opportunistic behavior and increasing the economic efficiency of contracts. The results of this research indicate that redefining contractual liability and remedies based on economic analysis and the theory of the expected contractual position, in addition to creating incentives for optimal behavior by the parties, enables optimal resource allocation, reduces disputes, and promotes economic justice in contractual relationships. This innovative approach provides an appropriate pathway for reforming traditional legal systems and establishing coherence between legal rules and the economic objectives of contracts.