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In two separate articles, Eric Maskin and Eric Posner attack the positive and normative bases of penalty defaults. Posner claims that there are no penalty defaults in contract law, and Maskin seems to claim that penalty defaults are not efficient.
This response refutes these claims. Posner can only come to his positive assessment by inappropriately carving away at what constitutes a default, what constitutes my model, and what constitutes a penalty default. Maskin's conclusion at most only limits the contexts where penalty defaults are efficient, and his counterexample to the Ayres and Gertner Hadley model is premised on an extremely fragile and unrealistic equilibrium concept. While Maskin proves that information-forcing rules are not always optimal, he fails to prove that there are not contexts (that is, parameter values) where information-forcing is still efficient—including the contexts emphasized in Ayres and Gertner's original model.
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