Published in: Journal of Institutional and Theoretical Economics 163 (1). (2007). 5-22. (with Randolph Sloof and Joep Sonnemans)
Theory predicts that default breach remedies are immaterial whenever contracting costs are negligible. Some experimental studies, however, suggest that in practice default rules do matter, as they may affect the preferences of parties over contract terms. This paper presents results from an experiment designed to address the importance of default breach remedies for actual contract outcomes. We find that default rules do have an impact. The reason for this is not that contract proposals and/or responses are biased towards the default, but rather that parties often disagree over what the best contracts is and therefore end up with the default.