How do informal agreements and renegotiation shape contractual reference points?
By: Ernst Fehr, Oliver D. Hart, Christian Zehnder
Contributors: Hart, Oliver D.; Zehnder, Christian; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17545; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17545.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
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