Designing efficient contracts are costly when:
A) everyone wants to cheat anyway.
B) there is complete information.
C) there is asymmetric information.
D) there is a free-rider problem.

Question

Quizplus · Accepted Answer

Designing efficient contracts is costly when there is asymmetric information, meaning that parties have different information about the value or quality of goods or services being exchanged. In such cases, it may be difficult to draft a contract that ensures compliance and avoids opportunistic behavior by one or both parties. This can lead to higher transaction costs and inefficiencies in the market. Options A, B, and D are not relevant to the issue of contract design costs.

Designing Efficient Contracts Are Costly When