Non-Compensable Investment and the Limits of Ex Post Contractual Remedies (NC / EAPP)
Non-Compensable Investment and the Limits of Ex Post Contractual Remedies
A Contract-Theoretic Rationale for Ex Ante Process Protection
Naoki Kitamura
Independent Researcher
- Publication date: January 2026
- Format: Working Paper / Preprint
- Availability: SSRN
Abstract
This paper develops a contract-theoretic framework for identifying non-compensable investment as a distinct analytical category. Non-compensable investment refers to irreversible commitments for which monetary transfer cannot restore the investor’s pre-loss state in terms of reachable option sets and commitment trajectories.
The paper shows that when such investments are present, standard ex post contractual remedies—expectation damages, liquidated damages, and safeguard-based governance—lose their analytical coherence. The failure is structural rather than informational or behavioral: compensation cannot recreate foreclosed possibilities once irreversible commitment has been disrupted.
Building on this diagnosis, the paper introduces Ex Ante Process Protection as an alternative contractual principle. Rather than attempting to compensate losses after they occur, this principle shifts the focus of contractual design toward preventing irreversible harm through procedural constraints, decision-right allocation, and intervention barriers that operate before damage materializes.
The analysis is purely theoretical and clarifies the scope conditions under which remedial contracting ceases to function and preventive contracting becomes necessary. Implications are discussed for contract theory, organizational governance, and institutional design in contexts such as creative work, entrepreneurship, and long-horizon research.
Paper Link
SSRN:
A-002-Non-Compensable_Investment_EAPP_Working_Paper_v1.0.pd
Scope and Limitations
This paper is a theoretical working paper.
It establishes definitions, scope conditions, and structural implications for contract-theoretic analysis.
Empirical validation, case studies, and the detailed design of credibility mechanisms for ex ante process protection are explicitly left for future research.