Coordination under Loss Contracts

Steffen Ahrens, Lea Bitter and Ciril Bosch-Rosa
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Ciril Bosch-Rosa: TU Berlin

No 256, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: In this paper we study the effects that loss contracts—prepayments that can be clawbacked later—have on group coordination when there is strategic uncertainty. We compare the choices made by experimental subjects in a minimum effort game. In control sessions, incentives are formulated as a classic gain contract, while in treatment sessions, incentives are framed as an isomorphic loss contract. Our results show that loss contracts reduce the minimum efforts of groups and worsen coordination between group members, both leading to lower payoffs. However, these results depend strongly on the group’s gender composition; groups with a larger proportion of women are better at coordinating and exert more effort.

Keywords: strategic uncertainty; loss aversion; coordination; contract design; framing; experiment (search for similar items in EconPapers)
JEL-codes: C91 D84 G11 G41 (search for similar items in EconPapers)
Date: 2020-09-07
New Economics Papers: this item is included in nep-exp and nep-gth
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Journal Article: Coordination under loss contracts (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:256

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