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Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-51547

Fehr, Ernst; Hart, Oliver; Zehnder, Christian (2011). How Do Informal Agreements and Renegotiation Shape Contractual Reference Points? Working paper series / Department of Economics No. 43, University of Zurich.

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Abstract

Previous experimental work provides encouraging support for some of the central assumptions underlying Hart and Moore (2008)’s theory of contractual reference points. However, existing studies ignore realistic aspects of trading relationships such as informal agreements and ex post renegotiation. We investigate the relevance of these features experimentally. Our evidence indicates that the central behavioral mechanism underlying the concept of contractual reference points is robust to the presence of informal agreements and ex post renegotiation. However, our data also reveal new behavioral features that suggest refinements of the theory. In particular, we find that the availability of informal agreements and ex post renegotiation changes how trading parties evaluate ex post outcomes. Interestingly, the availability of these additional options affects ex post evaluations even in situations in which the parties do not use them.

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
DDC:330 Economics
JEL Classification:C91, D03, D86, J41
Uncontrolled Keywords:Contractual reference points, informal agreements, renegotiation, experiment
Language:English
Date:October 2011
Deposited On:25 Nov 2011 11:13
Last Modified:21 Oct 2012 04:19
Series Name:Working paper series / Department of Economics
Number of Pages:54
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/wp.html

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