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.
Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
If you think you should have access to this title, please contact your librarian.