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The Moral Foundation of Economic Behavior$
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David C. Rose

Print publication date: 2011

Print ISBN-13: 9780199781744

Published to Oxford Scholarship Online: January 2012

DOI: 10.1093/acprof:oso/9780199781744.001.0001

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(p.18) Chapter 2 Opportunism
The Moral Foundation of Economic Behavior

David C. Rose

Oxford University Press

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

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