ABSTRACT
This chapter is all about identifying the subtle systems that stop people making mutually beneficial agreements. This is a dangerous situation for international companies, who quite unwittingly find themselves tarred by the sometimes disappointing results of capitalism. The self-fulfilling discrimination trap is a neat theoretical example of a general practical problem for multinational companies, a lack of trust between foreigners and locals. The economists Chaim Fershtman and Uri Gneezy used a nice game theory experiment to test the problems of establishing trust with 'foreign' strangers. Multinational companies may be unaware of the availability of viable suppliers, or they may find it too costly to use them as sources of inputs. Development economists are starting to become interested in micro-savings and micro-insurance schemes to supplement the proliferation of micro-credit. Long-term contracts that shift business risk from the poor person to you make sound economic sense as the risk is then dealt with by the party most able to insure against it.
