Leaving Money On the Table: Contract Practice in a Low-Trust Environment
Social capital – the level of trust inherent in a society – will affect the contracting practices that are considered standard, practical or fair. These practices in turn will help determine the parties’ positions as they approach their negotiation, how they will communicate, and what terms they will agree in any particular transaction. This is true not only for the small transaction, but also for large and complex deals. As a result, when operating in a low-trust environment, even sophisticated parties (who can bear the costs of tailoring an agreement to their particular case), will be prone to relinquish or to sacrifice value – leaving money “on the table”. The paper illustrates this point by contrasting alternative practices in merger & acquisition transactions, comparing the “standard” model that is generally encountered in the United States with an alternative model often encountered in the developing world, most particularly in transactions done among sophisticated parties throughout Latin America. The relationship between trust, social capital and contract is then outlined. Finally, some preliminary observations are made comparing the normative and behavioral presuppositions of different legal traditions and how they may reinforce or help rationalize alternative contract practices, as described earlier in the paper.
Civil Law | Commercial Law | Comparative and Foreign Law | Contracts | International Law | Law and Society
Date of this Version
Ruben Kraiem, "Leaving Money On the Table: Contract Practice in a Low-Trust Environment" (February 6, 2004). bepress Legal Series. bepress Legal Series.Working Paper 128.