The problem: you and your trading partner express different opinions about the future success, performance or news of an article or service. For example, an owner might be skeptical of a contractor`s promise to complete a major renovation project within six months. Different forecasts can fuel mistrust and hinder an agreement. The tool: … Read more is necessary because the contract is based on expected differences from each party. Each game can use its differences by betting for both parties to win.  However, quota contracts do not increase inclusive value, but have an impact on distributed value.  Contingency contracts can create value by preventing each party from negotiating from arguing over its divergent beliefs. Both parties will get better because they all trust their beliefs, ideas or projections.  But quota contracts are not only useful in motivating individuals. They can also motivate businesses.
For example, a public relations firm recently made a convincing success for a software company, claiming that its services could double the company`s revenue. The software company was impressed, but had heard rumors that the pr-league often introduced its star players at the point of sale and then handed the project over to less talented subordinates. A conditional contract, which based the software company`s fees on actual revenue changes, allowed the public relations company to use its best talent on the account. By rewarding exceptional results, quota contracts encourage exceptional performance. Companies can also use contingency contracts to reduce the risk their customers take when purchasing a new and untested product. A pharmaceutical company, for example, often struggles to get buyers – like HMOs – to buy a new drug instead of a well-established drug. Because clear clinical data on the efficacy of a drug may not appear for years, HMOs take a risk based on a new drug, even if the drug is cheaper than the established product. One way to overcome client hesitations is a conditional contract: the pharmaceutical company can offer a future payment to the HMO if clinical data prove that the new drug is less beneficial to patients than the old drug. By reducing the risk to customers, the contract allows the pharmaceutical company to market its new product more efficiently.