Explicit versus Implicit Contracts for Dividing the Benefits of Cooperation
Experimental evidence has accumulated highlighting the limitations of formal and explicit contracts in certain situations, and has identified environments in which informal and implicit contracts are more efficient. This paper documents the superior performance of explicit over implicit contracts in a new partnership environment in which both contracting parties must incur effort to generate a joint surplus, and one (“strong”) agent controls the surplus division. In the treatment in which the strong agent makes a non-binding, cheap talk “bonus” offer to the weak agent, this unenforceable promise doubles the rate of joint high effort compared to a baseline with no promise. The strong agents most frequently offered to split the gains of the high effort equally, but actually delivered this amount only about onequarter of the time. An explicit and enforceable contract offer performs substantially better, increasing the frequency of the most efficient outcome by over 200 percent relative to the baseline.
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.krannert.purdue.edu/programs/phd
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Charness & Guillaume R. Frechette & John H. Kagel, 2004.
"How Robust is Laboratory Gift Exchange?,"
Springer, vol. 7(2), pages 189-205, 06.
- Charness, Gary & Frechette, Guillaume R & Kagel, John H, 2002. "How Robust is Laboratory Gift Exchange?," University of California at Santa Barbara, Economics Working Paper Series qt8qq4k3ph, Department of Economics, UC Santa Barbara.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Rydval, Ondrej & Ortmann, Andreas, 2005.
"Loss avoidance as selection principle: Evidence from simple stag-hunt games,"
Elsevier, vol. 88(1), pages 101-107, July.
- Ondrej Rydval & Andreas Ortmann, 2004. "Loss avoidance as selection principle: evidence from simple stag-hunt games," CERGE-EI Working Papers wp245, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
- Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2007.
"Fairness and contract design,"
Munich Reprints in Economics
20618, University of Munich, Department of Economics.
- Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2005. "Fairness and Contract Design," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 67, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Ananish Chaudhuri, 2011. "Sustaining cooperation in laboratory public goods experiments: a selective survey of the literature," Experimental Economics, Springer, vol. 14(1), pages 47-83, March.
- Paul Healy, .
"Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market,"
GSIA Working Papers
2006-E6, Carnegie Mellon University, Tepper School of Business.
- Paul J. Healy, 2007. "Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market," American Economic Review, American Economic Association, vol. 97(5), pages 1751-1773, December.
- Uri Gneezy & John A. List, 2006.
"Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments,"
NBER Working Papers
12063, National Bureau of Economic Research, Inc.
- Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, 09.
- John List & Uri Gneezy, 2006. "Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments," Natural Field Experiments 00259, The Field Experiments Website.
- Avner Ben-Ner & Louis Putterman, .
"Trust, Communication and Contracts: An Experiment,"
0206, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
- Bahry, Donna L. & Wilson, Rick K., 2006. "Confusion or fairness in the field? Rejections in the ultimatum game under the strategy method," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 37-54, May.
- Blanco, Mariana & Engelmann, Dirk & Koch, Alexander K. & Normann, Hans-Theo, 2009.
"Preferences and Beliefs in a Sequential Social Dilemma: A Within-Subjects Analysis,"
IZA Discussion Papers
4624, Institute for the Study of Labor (IZA).
- Blanco, Mariana & Engelmann, Dirk & Koch, Alexander K. & Normann, Hans-Theo, 2014. "Preferences and beliefs in a sequential social dilemma: a within-subjects analysis," Games and Economic Behavior, Elsevier, vol. 87(C), pages 122-135.
- Blanco, Mariana & Engelmann, Dirk & Koch, Alexander K. & Normann, Hans-Theo, 2014. "Preferences and beliefs in a sequential social dilemma: A within-subjects analysis," DICE Discussion Papers 145, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
- Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December.
- Glenn Harrison & John List, 2004.
Artefactual Field Experiments
00058, The Field Experiments Website.
When requesting a correction, please mention this item's handle: RePEc:pur:prukra:1270. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Krannert PHD)
If references are entirely missing, you can add them using this form.