Governance mechanisms are designed
A) to increase contracting costs
B) to resolve post-contractual opportunism
C) to enhance the flexibility of restrictive covenants
D) to replace insurance
E) none of the above

Question

Quizplus · Accepted Answer

Governance mechanisms are put in place to resolve post-contractual opportunism. This refers to situations where one party takes advantage of the other party's vulnerabilities after a contract has been signed. Governance mechanisms act as a safeguard against such opportunism and ensure that both parties adhere to the terms of the contract. Options A, C, and D are incorrect as they do not accurately describe the purpose of governance mechanisms.

Governance Mechanisms Are Designed