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moral hazard

A problem created when a contract shifts risk from one party to another party and information asymmetries permit the non-riskbearer to behave adversely under the contract without detection or consequence. (Robert H. Mnookin, Scott R. Peppet and Andrew S. Tulumello, Beyond Winning [Belknap Press, 2004], 26).

The following items are tagged moral hazard:

Dear Negotiation Coach: Negotiating Upgrades

Posted by & filed under Dealmaking.

Q: My company, a large multinational, contracts with an outside vendor for some of our software infrastructure. Due to new regulatory requirements, we have asked the vendor’s team to upgrade certain features of the software. We think that we should get these upgrades for free because these enhanced features may be needed by their other clients … Read More 

Dear Negotiation Coach: “Bad acts” and better contracts.

Posted by & filed under Dealmaking.

Q: I work for an international nonprofit that tries to eliminate “bad acts” around the world—not illegal activities, but ones that we consider unethical. We are currently negotiating with a U.S. business owner who is engaged in these bad acts. His business is generating losses, so we are trying to buy him out and put … Read More 

Don’t rush into a flawed contract

Posted by & filed under Business Negotiations, Daily.

Adapted from “A Contingent Contract? Weigh the Costs and Benefits of Making a ‘Bet’,” by Guhan Subramanian (professor, Harvard Law School and Harvard Business School), first published in the Negotiation newsletter, August 2006. Contracts in professional sports are often chock-full of contingencies -“bets” that parties place on their different expectations of future outcomes – and former … Read More