Well now something tells me
You're gonna use me again
You think you can lay down
The how, the where, and the when
--Heart
Quid pro quo translates as "something given for something else" or "this for that." Contract law has extended this meaning to include the notion that contracts should be legally binding only if they involve exchanges of comparable value.
However, as Gary Galles observes, exchange value in unhampered markets may not be seen as equivalent by outside onlookers.
Voluntary exchange occurs when two or more parties, all interested in improving their circumstances, judge ex ante that they will be better off if they engage in trade. One party might benefit more. But trade occurs when all parties sense that they will benefit from exchange.
Moreover, judging equality of an exchange is difficult because value is subjective and in the eyes of the beholder. Those engaged in trade may value things differently than the onlooker.
Quid pro quo restrictions therefore impair standard of living, as people who would otherwise engage in voluntary exchange deemed to improve their circumstances are prohibited from fully doing so.
Agency and moral hazard problems also arise, as mediators designated to establish and regulate fair value trade are subject to mischief.
Thursday, September 25, 2014
Quid Pro Quo
Labels:
agency problem,
contracts,
intervention,
markets,
measurement,
moral hazard,
regulation,
valuation
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That ain't workin' that's the way you do it
Money for nothin' and chicks for free
~Dire Straits
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