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Contracts as reference points - experimental evidence


Hart, Oliver; Zehnder, Christian; Fehr, Ernst (2011). Contracts as reference points - experimental evidence. American Economic Review, 101(2):249-525.

Abstract

Hart and John Moore (2008) introduce new behavioral assumptions that can explain long-term contracts and the employment relation. We examine experimentally their idea that contracts serve as reference points. The evidence confirms the prediction that there is a trade-off between rigidity and flexibility. Flexible contracts--which would dominate rigid contracts under standard assumptions--cause significant shading in ex post performance, while under rigid contracts much less shading occurs. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract

Abstract

Hart and John Moore (2008) introduce new behavioral assumptions that can explain long-term contracts and the employment relation. We examine experimentally their idea that contracts serve as reference points. The evidence confirms the prediction that there is a trade-off between rigidity and flexibility. Flexible contracts--which would dominate rigid contracts under standard assumptions--cause significant shading in ex post performance, while under rigid contracts much less shading occurs. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract

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36 citations in Web of Science®
39 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Date:April 2011
Deposited On:26 Jan 2012 16:18
Last Modified:05 Apr 2016 15:25
Publisher:American Economic Association
ISSN:0002-8282
Publisher DOI:https://doi.org/10.1257/aer.101.2.493
Other Identification Number:merlin-id:3941

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