David C. Rose

in The Moral Foundation of Economic Behavior

Published in print November 2011 | ISBN: 9780199781744
Published online January 2012 | e-ISBN: 9780199919116 | DOI:

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This chapter explains why opportunism is the fundamental obstacle to the development and operation of a market economy. It reviews arguments for why general prosperity is impossible without specialization that is, in turn, impossible without transaction behaviour. The threat of opportunism drives up the cost of transacting, thereby reducing the set of transactions through which the gains from specialization can be realized. Opportunism also requires that resources be devoted to safeguarding, and interferes with the emergence and operation of trust-dependent institutions. Opportunism is shown to be a daunting problem because while it is harmful at the group level, it is often rational at the individual level because it is subject to commons dilemma type incentives. Employing concepts from contract theory, opportunism is categorized into three types. The third type is shown to present a serious difficulty for the use of relational contracts.

Keywords: commons dilemma; opportunism; relational contracts; specialization; transaction costs

Chapter.  10445 words. 

Subjects: Economics

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