include any situation in which individuals and groups must arrange their transactions (if they are to transact at all) without the aid of an independent enforcement mechanism whose powers are significantly greater than their own
If we cannot arrange to exchange our goods simultaneouslv, the next best thing is to make our relationship a permanent and cyclical one, so that at any given moment the party who has extended credit by performing first knows he can withhold some desired future benefit as a punishment for cheating on the other's part. Rather than reducing our exchange to an instant, we may adopt the opposite strategy and try to avoid the risk of opportunism by stretching it out forever: our aim, in this case, will be never to complete the transaction.
encouraging (or compelling) an emotional and psychological union between the parties, so that neither is able to distinguish his own interest from that of the other.
Consider another example of hands-tying. Suppose that I agree to give you my horse and in exchange you agree to make me a suit of clothes. You need the horse immediately, but the suit will take time to complete, and in the interim I must rely on your promise to perform. To make the promise credible, you take a bolt of cloth and cut from it the pieces you will need to construct my suit (you do this at the same time that I give you the horse). It is, of course, still possible for you to break your promise if you choose. But you have considerably less to gain from breach now that you have taken the first decisive step of cutting the cloth to my dimensions. To use these same pieces for someone else will now require more work (additional cutting, stitching pieces back together, etc.)-if, indeed, they can be made to fit anyone else at all. By cutting the cloth, you have increased the cost of using it for any purpose other than to complete my suit; this gives me added
confidence that the reputational harm you will suffer if you break your promise is likely to be greater, in your own eyes, than any potential advantage to be gained from doing so. Most important, you have now made it certain, by your actions, that in the event of breach you will automatically incur certain additional costs that would otherwise have been avoidable. Again, there is no need for me to intervene, to do something to you; you have arranged things so that whatever wounds you suffer will be self-inflicted.
The parties to an exchange in the state of nature can therefore reduce the risk of opportunism by taking steps to increase the likelihood that each will see his own self-interest as being internally connected to the welfare of the other… (union) combats transactional opportunism by annulling the independence of the parties, union (where it is successfil) actually replaces the state of nature with something altogether different. Hands-tying, hostage-giving, and the use of collateral are methods for transacting within the state of nature; union is a method for abolishing it.