In simple terms contingent contract can be described as a contract in which some money paid by one agent to another in future is bound to differ in relation to realization of some given future event. To arrive at an agreement it terms of payment when these contracts are involved, differences may arise between agents negotiating due to the uncertainty held by the future outcome (Tirole, 2006). Due to this the discussed below are ways to help contingent contracts may aid the results of negotiations between such agents. All these involve the use of bets to help in negotiations.
First bets may be employed to establish value agreeable to both parties. In this case the result is that each party will be made to put up an idea of a contingent contract in which the party believes and is convinced that such will be presentable and reasonable to the other party such a case makes that party to commit and bet that such contract can be adopted and can even bet up. Due to disagreement this will bring the two parties to agree upon such contract and thus ease negotiation and lead to adoption of the discussed contingent contracts. This minimizes time involved for both parties.
In the event that bets are used to manage biases, it is worth noting that both parties have their beliefs supported by various arguments. Due to this parties are given room to bet on their supposed great deals. This eventually helps the parties to show support to what they stand for and with this it is easier to come closer and prevent high degree of bias. This greatly enhances reaching terms by the parties (Tirole, 2006). In these case both parties ideas and beliefs are not undermined by biases.
In other cases bets are used to eliminate the involvement of lies and overestimation or underestimation since parties using such tactics are limited. This is because no one would make such a gamble knowing too well that eventually they will lose on their bets. In this case high value bets are best; integrity is brought about, which is very crucial in negotiations.
Lastly bets in contingent contracts help to motivate achievement of the goals set when such were being agreed upon. The drive to prove that a particular side targets are not too high will of course make such sides to increase need for great performance and this leads to win-win situation for both parties.
In conclusion it is notable that these ways are of utmost importance in the negotiations and should be considered by any two parties hitting a contingent contract.
Reference
Tirole, Jean. (2006). The Theory of Corporate Finance. New Jersey U.S.A, Princeton
University Press.
