Opportunism and contracts
Assymetrical information, exploitative use of warranties, conflicts of interest, etc. How to protect yourself from opportunisic behavior in business relations?
What are the main types of opportunistic risk?
– Unequal access to information, which enables one party to take advantage of the information lacking the other party. This can lead to a phenomenon known as adverse selection.
– Moral risk, which consists of neglecting to take precautionary measures because one is insured.
– Agents who have interests that are in conflict with those of the principal.
– Free riders, who unduly profit from the efforts of others.
– Hold-ups, in which a position of strength is used to expropriate a portion of the benefits generated by partner investments.
What vehicles can help prevent opportunistic behavior?
There are three main types of vehicles:
– Vertical integration, which is a radical way to prevent hold-ups.
– Hostages, which prevent many forms of opportunism. Potential benefits and a good reputation are two particularly effective hostages.
– The compensation system is another way to reconcile the interests of the various parties to a transaction.
SubscriberSign in
to download
the synopse (8 p.)
VisitorI want to buy
this synopsis (8 p.)
VisitorI want
to subscribe
See also
Negotiate while protecting the relationship over time
A successful negotiation is foremost one that leads to implementing an acceptable agreement for each of the parties involved. How can you pursue your interests whilst protecting a constructive relationship with the other party?
