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Framing Contracts: Why Loss Framing Increases Effort


  • Richard R. W. Brooks
  • Alexander Stremitzer
  • Stephan Tontrup


Recent evidence from the field (Hossain and List, 2009) suggests that contracts framed in terms of a loss (a deduction is taken for failing to meet a threshold) lead to greater effort than contracts framed in terms of a gain (a bonus is given for meeting a threshold). We investigate two explanations for this framing effect in a laboratory setting. First, we find that the loss frame communicates the expectation that achieving the bonus is the default and that our subjects comply with this expectation. Second, we find evidence for an endowment effect, even though the bonus is just a monetary payment that subjects do not even have in their possession.

Suggested Citation

  • Richard R. W. Brooks & Alexander Stremitzer & Stephan Tontrup, 2012. "Framing Contracts: Why Loss Framing Increases Effort," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 62-82, March.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201203)168:1_62:fcwlfi_2.0.tx_2-3

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    Cited by:

    1. repec:ucp:jlstud:doi:10.1086/694234 is not listed on IDEAS
    2. Jonathan Quidt & Francesco Fallucchi & Felix Kölle & Daniele Nosenzo & Simone Quercia, 2017. "Bonus versus penalty: How robust are the effects of contract framing?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 3(2), pages 174-182, December.
    3. Alex Imas & Sally Sadoff & Anya Samek, 2015. "Do People Anticipate Loss Aversion?," CESifo Working Paper Series 5277, CESifo Group Munich.
    4. Essl, Andrea & Jaussi, Stefanie, 2017. "Choking under time pressure: The influence of deadline-dependent bonus and malus incentive schemes on performance," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 127-137.
    5. Christoph Engel & Urs Schweizer, 2012. "Testing Contracts 29th International Seminar on the New Institutional Economics June 15-18, 2011, Krakow, Poland," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 1-4, March.
    6. Astrid, Gamba & Luca, Stanca, 2016. "Mis-Judging Merit: The Effects of Adjudication Errors in Contests," Working Papers 345, University of Milano-Bicocca, Department of Economics, revised 14 Jul 2016.
    7. K. Hilken & S. Rosenkranz & K.J.M. De Jaegher & M. Jegers, 2013. "Reference Points, Performance and Ability: A Real Effort Experiment on Framed Incentive Schemes," Working Papers 13-15, Utrecht School of Economics.

    More about this item

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts


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