Opportunistic Behavior Essay

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Opportunism is one transactional partner’s execution of such devious plans that others cannot  help blaming him or her for injustice unless they blame them-selves for inattentiveness,  complacency,  or timidity. Stockholders, suppliers, buyers, insurers, employers, and citizens must always be vigilant: never expecting deviousness is utopian.

Contracts    usually   involve  consideration.    Each party provides benefit to another, planning his or her own net  benefit. No given distributive  ratio  of fair outcomes  exists. Candidly  using others  instrumentally is a fair procedure.  If one-sided  outcomes  arise consensually, such fair procedure  counts  as fairness of substantive  outcome.  Hence, procedural  injustice counts  as  substantive  injustice.  Undisclosed  plans are devious. Impromptu ploys, too, deviate from consensus,  if any partner,  farsighted  enough, would have required them to be forsworn. Schemes are very devious if, having been forsworn, they are executed anyway. Predictable  outcomes,  however,  cannot  be blamed on deviousness.

A Contested Example

In  1926 General  Motors  bought  its body supplier, Fisher Body, outright.  Sixty percent  owned  by GM since  1919, Fisher  Body supplied  GM  at  cost  plus 17.6 percent.  From 1923 to 1925, Fisher doubled its return  on assets to 17.3 percent  as transport costs burgeoned. GM was used to colocation by Fisher. As demand  for GM cars boomed,  however, colocation no longer  suited  Fisher: from  1924, no new Fisher plant  was sited  near  GM. Such  unhelpfulness  was predictable, given on-cost profits. By conceding 17.6 percent on-cost, probably overestimating its power to persuade Fisher not to take advantage, GM consented to potential injury. An untoward share of profit looks substantively unjust, but no procedural  injustice was done. Only a loyal steward might be expected disinterestedly to undo what GM wittingly accepted. According to Oliver Williamson, the General Motors/Fisher Body case, though factually disputed, illustrates contractual friction.


Opportunism is not evident unless one partner  misleads  the  other.  Calculated  opportunism  exists  if facts or intentions,  knowledge of which would disquiet a trading partner, are deliberately misrepresented.  Otherwise,  a sufficient sign of opportunism is that, impromptu and post contract, a crafty inclination emerges: relying on facts not known previously to redistribute  net benefit or forming redistributive intentions   not  at  first  contemplated.  This state  of mind is dispositional, not intentional.

Williamson  defines opportunism as guileful self-seeking. Instrumental self-interest  is open.  Candid deals victimize no one. Misrepresentation lulls dupes into devious deals. The spirit of markets is, doubtless, not unequivocally caveat emptor  (vendor). Goodwill and courtesy subsist. Yet trade is risky if gains from breaking solemn pledges outweigh self-enforced fairness. Opportunism need  be neither  feral nor  pervasive, but  as  tricksters   occur  randomly,  distrust abounds and must be mitigated. Arrangements such as vertical integration,  not  necessarily anticompetitive by intent, often are designed primarily for private dispute resolution, whereas sovereign dispute resolution is impracticable.


Opportunists thrive on “impacted” information: conditions that  make it costly to scrutinize  the state of the world, including a partner’s state of mind. Vertical integration  facilitates scrutiny. Otherwise, beneficial deals are deterred, efficient trades frustrated, and costly precautions  induced  for fear of opportunism. Sellers eschew price discrimination,  suspicious of cunning  buyers pleading poverty or of arbitrageurs. Though scale economies are available, industry rivals may not outsource  research  to one another  because a sly supplier of knowledge might distort  it. Market failure also explains integration of research and development:  afraid to be gulled, independent researchers hide the slightest clues to their ideas in case they complement  alternative  ideas already partly formed by others.

Insurers  cannot  guess whether  clients will be negligent after they are insured; neither  can they easily uncover deceit. Experience rating (familiarization with partners’ characteristics)  ranks partners  by their probity. Insurers offer counter opportunist incentives, such as discounts  for proven  clients that  eschew petty or dishonest claims, and abate risk. Because insurers pool information,  risky clients struggle to get better  deals elsewhere when their charges rise with each claim.

Penalized like flighty insurance claimants, job quitters encounter  rules mandating  entry-level pay when they flit from job to job. Employers using cumulative audits of overall performance  eventually pay premiums to highly rated employees, just as insurers eventually grant discounts.

Some firms need distinctively skilled workers who are adaptable to vagaries in technological, trade, and product   life cycles. They need  people  who,  without haggling, helpfully share tricks of the trade with apprentices.  Codified ideas accessible to employers can be told to recruits, but even if they are similarly qualified, they cannot be told the ropes; someone must show them. Incumbents gain over time a monopoly grasp of idiosyncratic  processes: they may, unhelpfully, interact  inscrutably  with recruits  and perform so perfunctorily as to squander a firm’s uniqueness.

Internal labor-market rules sweeten a firm’s atmosphere; bonds of “citizenship” unlock impacted information.  Upstarts  from outside, faking eligibility, are thwarted  by port-of-entry rules.  Not  paid  specifically on the basis of performance  (quid pro quo) but rewarded  after tactful, cumulative experience  rating and  upon  achieving seniority,  incumbents  are protected from opportunistic queue jumpers.

Antitrust  authorities  may compel release of complete know-how. Operational  kinks are ironed out by sharing insight into makeshift solutions with customers. Not disclosing intuitive know-how embedded within a supplier’s experience may suggest caginess in relations with customers, in whose work such inscrutability begets inefficiency; uses of supplies may be shown unhelpfully. Unhelpful showing and selective disclosure of know-how, or its distortion,  betokens a more begrudging disposition than customers  expect. It is understandable that customers  are so treated— they are potential rivals, after all—but unfair if an artful dodger led them to expect openness.

Symmetrical Information, Asymmetrical Audacity

Trading partners necessarily omit to plan for all unforeseen contingencies. Starting with symmetrical information,  sometimes  they are not  symmetrically creative concerning  what is to come. Not designedly contrived by one partner, emergent gray areas prompt anyone so disposed to improvise impromptu. A maintenance  firm, for example, stipulated  payment  by a rail track owner after workers were on site. It bought motorcycles so its employees were punctual. Supplies were delayed by congested traffic.

Opportunism sometimes involves gall: Traders are not symmetrically bold. Partners  may hold symmetrical information,  but knowing his state of mind full well, the confident opportunist often challenges timid victims to act on that knowledge.

A hotelier  boasted  of  his  skill, years  earlier,  in “stringing creditors along.” His checks bore inconsistent words and numbers; and although he needed an associate’s signature, he signed solo. Paying “as late as possible” was a “question of nerve,” he said. Cunningly, not impromptu, he shifted costs to suppliers without consensus. In commercial dealing, governments, too, are disposed—or intend—to pay late. As to the social contract,  it is stealthily breached in numerous  sovereign abuses of the rule of law.


Two conditions  must  exist to constitute  opportunism. The first is bounded rationality. This term means that only a little of what needs to be known can be known. What  little is known, moreover, is complex and subject to change. Anyone who is boundlessly rational  would not be prey to opportunism, unless he were timid, but would know everything about the state of mind of potential  and current  trading partners, and about all possible states of the world bearing on all plans.

The second condition is small numbers. Victims of opportunism would not be its prey if large-numbers bargaining were not, as is common, subject to fundamental transformation into small-numbers situations. A supplier or employee initially interchangeable  with others grows with experience and by embedding himself becomes virtually irreplaceable. In large-numbers situations, one can turn away from one to many other partners. Often, though, victims sink by degrees into small-numbers situations with partners to whom, for the time being, they are inextricably wedded.

Functionaries (And Predators)

According  to  Oliver  Williamson,  in  large  U-form and  corrupted M-form  organizations,  functionaries entrenched in enclaves of private power enjoy various discretionary  abuses: uncompetitive  supply, persistent cross-subsidy of pet projects, and empire building, among others. Given stockholders’ inhibited propensity to displace them, their irreducible opportunism  is abetted  by diffuse accountability,  partisan misrepresentations, and weak auditors, lost in byways of impacted information.

Using qualified  majority  voting, concert  parties, poison  pills, stock  dilution  (or  support),  vexatious litigation, and so on, miscreant functionaries defy stockholders’  displacement   efforts.  Predators   too, quite opportunistically,  discredit  incumbent  managers, who need  deep  pockets  to restore  stockholder confidence.

Oligopolists are secretive mines of impacted information, inscrutable  to one another.  Therefore, collusion  sufficiently concerted  to  mimic  market  dominance or monopoly is problematical. Accordingly, natural (and patented) monopoly aside, dissolving monopolies into oligopolies is not quite fruitless.


  1. Jeffrey R. Cohen, Lori Holder-Webb, David J. Sharp, and Laurie W. Pant, “The Effects of Perceived Fairness on Opportunistic Behavior,” Contemporary Accounting Research (v.24/4, 2007);
  2. Daily Telegraph  (February 5, 1996);
  3. Daily Telegraph (October 18, 2003);
  4. Benjamin Klein, “The Economic Lessons of Fisher Body-General Motors,” International  Journal of the Economics of Business (v.14/1, 2007);
  5. John Rawls, A Theory of Justice (Oxford University Press, 1972);
  6. Oliver Williamson, Markets and Hierarchies: Analysis and  Anti-Trust Implications  (Free Press, 1975);
  7. Oliver Williamson, “The Theory of the Firm as Governance Structure: From Choice to Contract,” Journal of Economic Perspectives (v.16/3, 2002).

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