hard · LSAT Reading Comprehension

Contract theorists sympathetic to the efficient-breach doctrine argue that expectation damages, by pricing the cost of nonperformance rather than compelling performance itself, allow a promisor to breach whenever doing so and paying damages leaves total resources higher than performance would have. Detractors respond that this account rests on courts accurately measuring expectation damages, an assumption belied by the systematic undercompensation documented in cases involving highly idiosyncratic or non-market goods, where courts default to market-price proxies that ignore subjective value. The detractors are correct that measurement error is pervasive, but they overstate its implications: undercompensation does not show that efficient breach is a flawed theory of what damages should accomplish, only that courts are an imperfect instrument for accomplishing it. A regime of perfectly measured expectation damages would still make breach efficient exactly when the theory predicts; the objection is therefore best understood as an argument for improving damages measurement, not as a refutation of the theory measurement is meant to serve.

Which one of the following most accurately expresses the main point of the passage?

  1. Systematic undercompensation for idiosyncratic goods shows that courts should permanently abandon market-price proxies in favor of purely subjective valuation.
  2. The measurement-error objection targets a real implementation failure, but it does not refute the efficient-breach theory it is often thought to undermine.
  3. Because courts can never measure subjective value accurately, the efficient-breach doctrine is fundamentally and permanently unworkable in practice.
  4. Detractors of efficient breach are simply mistaken that measurement error in expectation damages is pervasive across ordinary contract cases.
  5. Expectation damages should always be replaced with specific performance whenever the promised good is highly idiosyncratic or non-market in nature.

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