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Anja Shortland

Print publication date: 2019

Print ISBN-13: 9780198815471

Published to Oxford Scholarship Online: January 2019

DOI: 10.1093/oso/9780198815471.001.0001

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Crafting an Effective Protection Contract

Crafting an Effective Protection Contract

(p.79) 5 Crafting an Effective Protection Contract

Anja Shortland

Oxford University Press

Firms cannot operate safely in rebel territory without making security arrangements with local powerbrokers. How does one make a protection contract with an armed group that is both self-enforcing and plausibly deniable? Protection contracts have prisoners’ dilemma characteristics: cooperation is only sustainable with indefinite time horizons or effective sanctioning mechanisms. This chapter discusses seven different options that are appropriate in different contexts and can also be deployed in parallel. Firms—advised by security consultancies—choose the options that minimize the total costs of obtaining security. These include production costs, transactions costs, and the potential reputational costs of engaging with rebel movements or deploying (para)military forces against local opposition groups.

Keywords:   protection, relational contracts, prisoners’ dilemma, outsourcing, Coase, transaction costs

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