How Do Informal Agreements and Renegotiation Shape Contractual Reference Points?

Ernst Fehr, Oliver Hart and Christian Zehnder

No 6095, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: renegotiation; fairness; reference points; contracts; informal agreement (search for similar items in EconPapers)
JEL-codes: C91 D03 D86 J41 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2011-10
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published - published in: Journal of the European Economic Association, 2015, 13 (1), 1-28

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Related works:
Working Paper: How Do Informal Agreements and Renegotiation Shape Contractual Reference Points? (2011)
Working Paper: How do informal agreements and renegotiation shape contractual reference points? (2011)
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