A reputation bond equals forgone future profits from breach
Evidence
The typical diamond transaction involves the posting of a reputation bond equal to the present value of the profit on future transactions that will not take place if the promisor breaches a contract, less his ability to cover. — Lisa Bernestein, Opting out of the Legal System, 168
Categorization
- DEFINE: Precise, formal definition of a reputation bond as a present-value calculation — useful operationalization.
- XREF: connects to: Handshake contracts shift enforcement costs onto reputation bonds. — Lisa Bernestein, Opting out of the Legal System, 126; Cheap legal contracts still depend on extralegal reputation bonds — Lisa Bernestein, Opting out of the Legal System, 140; Trust matters everywhere, but cheap reputation bonds enable fully private law — Lisa Bernestein, Opting out of the Legal System, 167 (+4 more)
Related
- Handshake contracts shift enforcement costs onto reputation bonds. (similarity 0.88)
- Cheap legal contracts still depend on extralegal reputation bonds (similarity 0.85)
- Trust matters everywhere, but cheap reputation bonds enable fully private law (similarity 0.83)
- Reputation can substitute for legal enforceability in evaluating contracts. (similarity 0.80)
Broader Connections
- Reputation-building is a deliberate investment of foregone gains
#expands(0.90) - A continuing relationship functions as a bond deterring dishonest trading
#exemplifies(0.85) - Repeated future encounters make trust breach structurally costly
#expands(0.82) - A trustworthy reputation can be exploited because it is imperfectly known
#complicates(0.78)