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Choosing and Not Choosing with and without Communication: Experimental Results on Contract Design and Selection

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  • Gary Charness
  • Matthew Ellman

Abstract

This paper studies selection and procedural effects in experimental contracting when sellers choose unenforceable trade quality after a possible cost shock. Brandts, Charness, and Ellman (2016) investigate how communication affects behavior and outcomes in contracts with rigid prices, relative to contracts where buyers can raise prices after observing the shock. An important remaining question is how behavior is affected by whether contract type is endogenous or experimenter-imposed. Different sorts of buyers may select contract types differently and sellers may respond differently when contract type is endogenous. Surprisingly, we find only modest effects. We draw lessons for experimental design.

Suggested Citation

  • Gary Charness & Matthew Ellman, 2016. "Choosing and Not Choosing with and without Communication: Experimental Results on Contract Design and Selection," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(1), pages 142-157, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201603)172:1_142:cancwa_2.0.tx_2-b
    DOI: 10.1628/093245613X14500948554153
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    1. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-1320, September.
    2. Bardhan, Pranab, 2000. "Irrigation and Cooperation: An Empirical Analysis of 48 Irrigation Communities in South India," Economic Development and Cultural Change, University of Chicago Press, vol. 48(4), pages 847-865, July.
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    Cited by:

    1. Christoph Engel & Urs Schweizer, 2016. "Beyond Privity 33rd International Seminar on the New Institutional Economics June 10-13, 2015, Edinburgh, United Kingdom," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(1), pages 1-4, March.
    2. Alexander Morell, 2016. "Choosing and Not Choosing with and without Communication," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(1), pages 158-162, March.
    3. Martin Brown & Jan Schmitz & Christian Zehnder, 2018. "Communication, Credit Provision and Loan Repayment: Evidence from a Person-to-Person Lending Experiment," Working Papers on Finance 1819, University of St. Gallen, School of Finance, revised Aug 2020.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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