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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Contracts as reference points—experimental evidence |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | American Economic Review |
| Publisher | American Economic Association |
| Geographical Reach | international |
| ISSN | 0002-8282 |
| Volume | 101 |
| Number | 2 |
| Page Range | 493 - 525 |
| Date | 2011 |
| Abstract Text | 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. (JEL D44, D86, J41) |
| Digital Object Identifier | 10.1257/aer.101.2.493 |
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