Sequencing of remedies in sales law

This paper analyzes the effects of different sequences of remedies on the incentives of sellers to invest in product quality
and on the probability of contract termination. For most European jurisdictions, Directive 1999/44/EC on the sale of consumer
goods and its subsequent implementation into national law resulted in a substantial change in the remedies available to the
consumer if a product proves deficient. Despite the purpose of the directive to harmonize national legislation, sales laws
still differ significantly among member states. The analysis uses a stylized model to compare the pertinent features of two
prototypical legal regimes that can be found after the directive’s implementation. The pivotal difference between the respective
regimes lies in the sequence of remedies. We show that it is possible that investment incentives and the probability that
contractual relationships initiated will be completed may be larger under either legal regime. Despite the general case’s
ambiguity, we establish that the cancelation probability is typically lower if sales law limits buyers initial choice of remedies
to subsequent performance. Our analysis indicates that the EC’s harmonization target has been missed. With regard to social
optimality, we detail under which conditions it is desirable to provide an institutional framework that allows total seller
investment to be split between an initial and an incremental input.