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Endowment Effects within Corporate Agency Relationships

  • Arlen, Jennifer
  • Spitzer, Matthew
  • Talley, Eric
Registered author(s):

    Behavioral economics is an increasingly prominent field within corporate law scholarship. A particularly noteworthy behavioral bias is the "endowment effect"--the observed differential between an individual's willingness to pay to obtain an entitlement and her willingness to accept to part with one. Should endowment effects pervade corporate contexts, they would significantly complicate much common wisdom within business law, such as the presumed optimality of ex ante agreements. Existing research, however, does not adequately address the extent to which people manifest endowment effects within agency relationships. This article presents an experimental test for endowment effects for subjects situated in an agency relationship that typifies many firms. We find that subjects do not exhibit significant endowment effects. An additional experimental test suggests that this finding may be largely due to framing: subjects situated as "agents" may view entitlements principally in terms of exchange value, thereby dampening endowment. Copyright 2002 by the University of Chicago.

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    Article provided by University of Chicago Press in its journal Journal of Legal Studies.

    Volume (Year): 31 (2002)
    Issue (Month): 1 (January)
    Pages: 1-37

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    Handle: RePEc:ucp:jlstud:v:31:y:2002:i:1:p:1-37
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLS/

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