To Choose or Not to Choose: Contracts, Reference Points, Reciprocity, and Signaling
AbstractHart and Moore (2008) argue that varying degrees of flexibility in contracts induce differing reference points and aspiration levels for parties’ shares of a transaction’s total surplus. As a consequence, a trade-off between adaptational flexibility and the prevention of distributional conflicts emerges. In a recent paper, Fehr et al. (2009b) analyze a buyer-seller-relationship with incomplete contracts and ex ante uncertainty regarding the sellers’ cost level to test these effects. We re-run their experiment and introduce another treatment with exogenously determined contract types. Like FHZ we find reference point effects in both treatments. However, uncooperative shading behavior in our treatments differs substantially from that described in FHZ. Furthermore, it makes a significant difference whether contract types are determined by buyers or determined exogenously. We explain this by introducing two further effects, a reciprocity effect and a signaling effect.
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Bibliographic InfoPaper provided by Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal) in its series TUC Working Papers in Economics with number 0007.
Length: 22 pages
Date of creation: 2012
Date of revision:
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contracts; reference points; experiment;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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