Contracts as reference points
By: Oliver Hart & John Moore.
Contributors: Moore, John.; John M. Olin Center for Law, Economics, and Business.
Series: Discussion paper -- no. 572; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 572.
Publisher: Harvard Law School
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We argue that a contract provides a reference point for a trading relationship: more precisely, for parties' feelings of entitlement.  A party's ex post performance depends on whether he gets what he is entitled to relative to outcomes permitted by the contract.  A party who is shortchanged shades on performance.  A flexible contract allows parties to adjust their outcome to uncertainty, but causes inefficient shading.  Our analysis provides a basis for long-term contracts in the absence of noncontractible investments, and elucidates why &ldquo;employment&rdquo; contracts, which fix wage in advance and allow the employer to choose the task, can be optimal"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 3/16/2007.

Includes bibliographical references.

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Mode of access: World Wide Web.