You buy a $1,000 plane ticket to Sydney Australia for next Christmas. Once your flight is...

   

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You buy a $1,000 plane ticket to Sydney Australia for next Christmas. Once your flight is booked, you spend $1,500 on non-refundable reservations for a SCUBA dive, a whale watching cruise, and several other adventures. Without these investments, your time in Sydney would have brought you enjoyment worth $3,000; having made these investments, your time in Sydney will bring you enjoyment of $6,000. Of course, there is some chance that something will go wrong and the airline will have to cancel your flight. And there are costly actions such as not overbooking the flight, paying their pilots well, and leaving extra time on the schedule - that make the airline less likely to have to cancel. (a) Define a reliance investment. Which of the things described above are reliance investments? (b) Define an investment in performance. Which of the things described above are investments in performance? (c) Suppose that in the event your flight was cancelled, the airline owed you reliance damages. Conceptually, what would this measure? In this problem, how much money would it be? (d) Would reliance damages create an incentive for the airline to invest more than, less than, or the efficient amount in being able to fly you to Sydney? Why? (e) Suppose that in the event your flight was cancelled, the airline owed you expectation damages, which were meant to capture the full value of your trip at the time you would have taken it. How much money would this be? (f) Would expectation damages create an incentive for the airline to invest more than, less than, or the efficient amount in being able to fly you to Sydney? Why? (g) Would expectation damages lead you to invest more than, less than, or the efficient amount in non- refundable Sydney adventures? Why? You buy a $1,000 plane ticket to Sydney Australia for next Christmas. Once your flight is booked, you spend $1,500 on non-refundable reservations for a SCUBA dive, a whale watching cruise, and several other adventures. Without these investments, your time in Sydney would have brought you enjoyment worth $3,000; having made these investments, your time in Sydney will bring you enjoyment of $6,000. Of course, there is some chance that something will go wrong and the airline will have to cancel your flight. And there are costly actions such as not overbooking the flight, paying their pilots well, and leaving extra time on the schedule - that make the airline less likely to have to cancel. (a) Define a reliance investment. Which of the things described above are reliance investments? (b) Define an investment in performance. Which of the things described above are investments in performance? (c) Suppose that in the event your flight was cancelled, the airline owed you reliance damages. Conceptually, what would this measure? In this problem, how much money would it be? (d) Would reliance damages create an incentive for the airline to invest more than, less than, or the efficient amount in being able to fly you to Sydney? Why? (e) Suppose that in the event your flight was cancelled, the airline owed you expectation damages, which were meant to capture the full value of your trip at the time you would have taken it. How much money would this be? (f) Would expectation damages create an incentive for the airline to invest more than, less than, or the efficient amount in being able to fly you to Sydney? Why? (g) Would expectation damages lead you to invest more than, less than, or the efficient amount in non- refundable Sydney adventures? Why?

Answer rating: 100% (QA)

a Reliance Investment A reliance investment is an investment made by a party based on the expectatio... View the full answer