Side Payments

When two parties involved in a transaction exchange money that is not part of the transaction itself, the exchange is a side payment. It is typically made to induce the recipient to take part in the transaction.

The most notorious side payments are kickbacks and other types of bribes, but side payments can take many forms, some perfectly legitimate. For example, if several countries join a pact to reduce air pollution, a downwind country that has the most to gain from clean air may make a side payment to an upwind country to give it some incentive to participate in what would otherwise be a losing proposition.