Building Foundations for a Durable Deal
12 October 2006
By Dr. Victor Goldberg with Professor Ronald Gilson of Columbia and Stanford Universities, Professor Michael Klausner of Stanford University, and Dr. Daniel Raff of the Wharton School of the University of Pennsylvania
Deals occur, and value is created, when deal professionals design structures that make value more ascertainable, constrain future misbehavior by participants, and limit the potential costs of long-term commitment by preventing the parties from taking advantage of a counterparty's sunk investments. In this article from the Financial Times, NERA Special Consultant and Columbia Law School Professor Dr. Victor Goldberg, Professor Ronald Gilson of Columbia and Stanford Universities, Professor Michael Klausner of Stanford University, and Dr. Daniel Raff of the Wharton School of the University of Pennsylvania discuss the structure of deals. The authors argue that if parties address four core economic issues underpinning transactions -- adverse selection, moral hazard, the transaction specificity of assets, and exogenous risk-- they can bridge gaps that would otherwise kill deals or interfere with the achievement of optimum value.
