ABSTRACT
Buyers and sellers may undertake an exchange of goods and services over a period of time and develop long-term relationships. Contracts are one method by which these relationships are developed. Williamson relies on two behavioural assumptions which depart from those of neoclassical economics: opportunism and bounded rationality. Opportunism is defined as a strategy involving guile, intended to further self-interest. Governance implies a retreat from classical contracting, which is equivalent to the comprehensive contracting and planning concepts above – it is assumed possible to account for every aspect of the transaction in the contract. A solution which Williamson largely discounts, but which is given substantial attention elsewhere in the literature, is reliance on reputation effects as a constraint on opportunistic behaviour. The major question addressed in the health contracting literature which immediately responds to an environment of bounded rationality and opportunism is the issue of effective monitoring of contracts.
