|Bartling, Björn and Schmidt, Klaus M. (October 2012): Reference Points in Renegotiations: The Role of Contracts and Competition. Discussion Papers in Economics 2012-27|
This is the latest version of this item.
Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant and economically important impact on renegotiation behavior that goes beyond the effect of contracts on bargaining threatpoints. We compare situations in which an initial contract is renegotiated to strategically equivalent bargaining situations in which no ex ante contract was written. The ex ante contract causes sellers to ask for markups that are 45 percent lower than in strategically equivalent bargaining situations without an initial contract. Moreover, buyers are more likely to reject given markups in renegotiations than in negotiations. We do not find that these effects are stronger when the initial contract is concluded under competitive rather than monopolistic conditions.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||renegotiation, bargaining, reference points, contracts, competition|
Economics > Discussion Papers in Economics
Economics > Chairs > Seminar for Economic Theory
|Subjects:||300 Social sciences > 300 Social sciences, sociology and anthropology|
300 Social sciences > 330 Economics
|JEL Classification:||C78, C91, D03, D86|
|Deposited On:||30. Oct 2012 18:47|
|Last Modified:||07. May 2014 17:28|
Andreoni, James and John H. Miller. 2002. “Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism.” Econometrica, 70(2): 737–53.
Brandts, Jordi, Gary Charness, and Matthew Ellman. 2012. “Let’s Talk: How Communication affects Contract Design.” mimeo.
Camerer, Colin. 2003. Behavioral Game Theory, Princeton: Princeton University Press.
Charness, Gary and Matthew Rabin. 2002. “Understanding Social Preferences with Simple Tests.” The Quarterly Journal of Economics, 117(3): 817–69.
Erlei, Mathias and Christian Reinhold. 2011. “To Choose or Not to Choose: Contracts, Reference Points, Reciprocity, and Signaling.” mimeo.
Fehr, Ernst, Oliver Hart, and Christian Zehnder. 2009. “Contracts, Reference Points, and Competition-Behavioral Effects of The Fundamental Transformation.” Journal of the European Economic Association, 7(2-3): 561–72.
Fehr, Ernst, Oliver Hart, and Christian Zehnder. 2011. “Contracts as Reference Points – Experimental Evidence.” American Economic Review, 101(2), 493-525.
Fehr, Ernst, Oliver Hart, and Christian Zehnder. 2012. “How Do Informal Agreements and Renegotiation Shape Contractual Reference Points?” mimeo.
Fehr, Ernst and Klaus M. Schmidt. 1999. “A Theory of Fairness, Competition, and Cooperation.” The Quarterly Journal of Economics, 114(3): 817–68.
Fischbacher, Urs. 2007. “z-Tree: Zurich Toolbox for Ready-made Economic Experiments.” Experimental Economics, 10(2): 171–78.
Grossman, Sanford J. and Oliver D. Hart. 1986. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy, 94(4): 691–719.
Hart, Oliver. 2009. “Hold-Up, Asset Ownership, and Reference Points.” Quarterly Journal of Economics, 124(1): 267–300.
Hart, Oliver and Bengt Holmström. 2010. “A Theory of Firm Scope.” Quarterly Journal of Economics, 125(2): 483–513.
Hart, Oliver and John Moore. 1988. “Incomplete Contracts and Renegotiation.” Econometrica, 56(4): 755–85.
Hart, Oliver and John Moore. 1990. “Property Rights and the Nature of the Firm.” The Journal of Political Economy, 98(6): 1119–58.
Hart, Oliver and John Moore. 2008. “Contracts as Reference Points.” Quarterly Journal of Economics, 123(1-48).
Herweg, Fabian and Klaus M. Schmidt. 2012. “A Theory of Inefficient Ex-post Renegotiation.” mimeo.
Hoppe, Eva I. and Patrick W. Schmitz. 2011. “Can Contracts Solve the Hold-up Problem? Experimental Evidence.” Games and Economic Behavior, 73: 186–99.
Iyer, Rajkamal and Antoinette Schoar. 2010. “Incomplete Contracts and Renegotiation: Evidence from a Field Audit.” MIT LFE Working Paper LFE-0713-10.
Available Versions of this Item
Reference Points in Renegotiations: The Role of Contracts and Competition. (deposited 06. Aug 2012 08:05)
- Reference Points in Renegotiations: The Role of Contracts and Competition. (deposited 30. Oct 2012 18:47) [Currently Displayed]