Contracts as reference points
By: Oliver Hart, John Moore
Contributors: Moore, John; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12706; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12706.
Publisher: National Bureau of Economic Research
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 "employment" contracts, which fix wage in advance and allow the employer to choose the task, can be optimal" National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 12/20/2006.

Includes bibliographical references.

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