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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

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Publication Date

Winter 1989




Duke University School of Law




This article attempts to suggest valuable refinements and extensions of the economic theory of warranty by explicitly considering the choice of remedies for breach of warranty in conjunction with the choice of warranty protection itself. In particular, it offers explanations for the prevalence of replacement terms rather than refund terms in warranties. Economists studying the general issue of breach of contract have noted that the choice of remedy has important implications for risk sharing, renegotiation, transaction-specific investment, and the incentive to breach.5 This article derives much of its insight from the recognition that work on the economics of contract breach has much to say that is relevant to the economics of warranties.

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