Working Paper: NBER ID: w17545
Authors: Ernst Fehr; Oliver D. Hart; Christian Zehnder
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.
Keywords: informal agreements; renegotiation; contractual reference points
JEL Codes: C91; D03; D86; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Informal agreements (L14) | Seller performance (L85) |
| Informal agreements (L14) | Shading behavior (C92) |
| Renegotiation opportunities (L14) | Rigid contracts as reference points (D86) |
| Opportunistic renegotiation (D86) | Shading on seller side (L85) |
| Informal agreements and renegotiation (L14) | Performance outcomes (L25) |