A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier to take advantage of the purchaser (or vice versa)? Is this the right supplier to engage in a long-term contract? C.Is there a fair distribution of risk and gains between the parties involved?

A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier to take advantage of the purchaser (or vice versa)? Is this the right supplier to engage in a long-term contract? C.Is there a fair distribution of risk and gains between the parties involved?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.10P

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