Introduction

A self-enforcing agreement between two parties remains in force only as long as each one believes himself to be better off by continuing the agreement than he would be by ending it. It is left to the judgment of the parties themselves to decide whether or not there has been a violation. If one party violates the terms, then the other party has as his only recourse termination of the agreement after he discovers the violation. No third party intervenes to determine whether a violation has taken place or to estimate the damages that may be attributed to such a violation. No third party decides whether a violation has been “will-ful” or “accidental.” A party to a self-enforcing agreement calculates whether the gain from violating the agreement is greater or less than the loss of future net benefits from detection of the violation and the consequent termination of the agreement by the other party.