One way to reduce conflicts of interest between lenders and borrowers is by writing contracts that restrict the borrowers' ability to harm lenders by taking risky actions.

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By restricting borrowers' ability to take risky actions, lenders can reduce the potential for conflicts of interest that may arise in a borrower-lender relationship. This can be done through various contract clauses, such as covenants, representations and warranties, and default provisions, that limit the actions of borrowers and provide lenders with legal remedies in case of breach.

One Way to Reduce Conflicts of Interest Between Lenders and Borrowers