Bounded
rationality: Individuals have
limited capacity to process information so they cannot know everything and
foresee all possible contingencies that can arise over the course of a business
relationship. Therefore, they cannot draw contracts that cover everything.
Difficulties
in specifying/measuring performance: It can be debated what performance of a partner constitutes
fulfilment of a contract because performance cannot always (or even often) be
measured unambiguously.
Asymmetric
information: Seller can have
more relevant information that the buyer and the seller can use this
information opportunistically. Contracting on items that are prone to
information asymmetry is difficult.
