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Ogus, Anthony I. --- "Regulatory Arrangements and Incentives for Opportunistic Behaviour" [2007] ELECD 241; in Eger, Thomas; Faure, Michael; Naigen, Zhang (eds), "Economic Analysis of Law in China" (Edward Elgar Publishing, 2007)

Book Title: Economic Analysis of Law in China

Editor(s): Eger, Thomas; Faure, Michael; Naigen, Zhang

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847200365

Section: Chapter 6

Section Title: Regulatory Arrangements and Incentives for Opportunistic Behaviour

Author(s): Ogus, Anthony I.

Number of pages: 13

Extract:

6. Regulatory arrangements and
incentives for opportunistic
behaviour
Anthony I. Ogus

1. PROBLEMS OF OPPORTUNISTIC BEHAVIOUR

`Opportunism is a subtle and pervasive condition of human nature with
which the study of economic organization must be actively concerned.'1 In
general, we tend to think most about opportunism in a contractual setting,
in particular where one party (say A) has power in relation to the other
party (say B) either as a result of a monopoly relationship or because of
significant information asymmetry.2 That power can induce B to agree to
terms of the contract, for example regarding payment, which would not
otherwise have been agreed to. It can also make it difficult for B to monitor
and evaluate the conduct of A to ensure faithful performance of obliga-
tions that have been undertaken, either because A lacks sufficient informa-
tion about what is necessary for A to fulfil his contractual obligations or
because, as a result of the monopoly, it is futile for B to complain because
no alternative is available in the market.
A variety of legal principles serve to restrain opportunistic behaviour of
this kind.3 The law can can impose specific obligations regarding price or
quality of performance on the contractual relationship; it can classify the
A­B relationship as giving rise to a fiduciary duty (by A), with the array of
obligations which flow from that; and it can subject A's conduct to the
general obligation of good faith. The inherent difficulty of solutions ...