Niklas85ger
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Hallo,

i am enrolled in a law-and-economics course which deals with breach of contract.

1. i have the following model:
buyer B with valuation v and reliance investment I and seller S, some third party E with valuation of the good θ and θ's distribution F(θ) and density F'(θ).

Q: What does F(θ) and F'(θ) mean? how do they look graphically?


2. first-best (social planner's choice) vs. expectation damages:

first-order condition for social planner is: (1) v ' (I^{F}) * F (v(I^{F})) = 1
I^{F} is reliance investment superscript F (F for first-best)

first-order condition under expectation rule: (2) v' (I^{ED} = 1

Q: Why is curve (2) above the curve (1). after all that means, that there is over-investment under expectation damages. the intuition behind is not clear for me. can somebody explain in words?

thanks in advance.
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