Long-term contracts:
A) increase transaction costs and increase opportunism.
B) increase transaction costs.
C) can reduce opportunistic behavior.
D) reduce transaction costs and increase flexibility.

Question

Quizplus · Accepted Answer

Long-term contracts can reduce opportunistic behavior by creating a mutually beneficial relationship between parties that encourages cooperation and discourages the exploitation of information asymmetry or hidden intentions. This reduces the need for monitoring and enforcement mechanisms which ultimately leads to lower transaction costs.

Long-Term Contracts