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"The Economic Analysis of Lies in Business-to-Business Contract Negotiation" by Stefanie Jung
Lying is a widespread phenomenon in business-to-business (B2B) contract negotiations that national legal systems regulate substantially differently. Aim of this research is therefore to determine where the legal order should draw the line between legal and illegal lies in consideration of economic and moral arguments as well as differences in legal culture. This paper specifically addresses one subpart of this question: the economic effects of deception in bilateral business-to-business contract negotiations. So far, this topic has been intensively this respect, reasoning: paper Transaction welfare a business the negotiated will considered analysis for economics practices the costs, agreement) will first primarily base (as time with an upon deliver special and indicator), with the ZOPA regard an following attention overall (zone to various on analysis different of possible the impact complex, within economic agreement), on this specific BATNA approaches topic issues. field. (best In alternative and However, this lines of to - the truth signal and trust, - spillover effects, - the right to lie in order to protect the right to remain silent - prohibition of lies as basis for the prevention of knowledge shifts and - the structural favouring of the weaker party. An international study on lies in contract negotiations conducted by the author and Peter Krebs (University of Siegen) with almost 1500 participants from 13 countries (including China, Rus- sia, the USA and Germany – surveyed groups: judges, lawyers, professional negotiators and students) helps to apply the economic results to different types of lies. The study shows that, with regard to moral beliefs and, the sense of unlawfulness (feeling how the law should be), individuals differentiate between what a negotiator has actually lied about (e.g. the price, per- formance, offers of other providers, availability of products). The paper demonstrates that the economic effects also vary, depending on what exactly a negotiator lies about. It will be shown that there are constellations where lies result in clear economic disadvantages. Conversely, however, this paper also evinces that there may be constellations which (almost) do not produce any negative economic effects or even lead to a slightly positive overall result. With regard to the legal design, both, the economic results as well as the aforementioned international study suggest that not all lies should not be treated equally. The analysis also emphasises the im- portance of the enforceability of a possible legal prohibition of lies. For economic reasons alone, a prohibition only appears sensible if enforcement is feasible at all. The discussion of transaction costs, the truth signal, the loss of trust and spillover effects also demonstrates the negative economic consequences which arise if a legal order only bans causal deceptions – as most legal orders do. Moreover, the concept of the cheapest cost avoider supports the legal rule of "intent beats negligence".