IDEAS home Printed from https://ideas.repec.org/p/ags/gagfdp/205914.html
   My bibliography  Save this paper

Risky Environments, Hidden Knowledge, and Preferences for Contract Flexibility: An Artefactual Field Experiment

Author

Listed:
  • Kunte, Sebastian
  • Wollni, Meike

Abstract

Contract flexibility can be expedient for economic exchange in environments with high ambiguity and risk, but may also encourage opportunistic behavior. We run a modified investment game, including the choice between two different contract designs and asymmetric information about the realized surplus (i.e., hidden knowledge). We examine if Nairobi slum dwellers choose flexible over rigid contracts when interacting in risky environments and whether preferences for contract flexibility are sensitive to the exogenous probability of experiencing a negative shock. We find that most interaction is realized through flexible agreements. Principals offer a higher level of flexibility if the likelihood of a shock is high, relative to the low-risk environment. Agents are somewhat more reluctant to sign rigid agreements when facing the threat of a bad state. While agents and the overall efficiency benefit from higher flexibility, principals always do better by opting for a rigid contract.

Suggested Citation

  • Kunte, Sebastian & Wollni, Meike, 2015. "Risky Environments, Hidden Knowledge, and Preferences for Contract Flexibility: An Artefactual Field Experiment," GlobalFood Discussion Papers 205914, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    • Handle: RePEc:ags:gagfdp:205914
    DOI: 10.22004/ag.econ.205914
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/205914/files/GlobalFood_DP69.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.205914?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Björn Bartling & Klaus M. Schmidt, 2015. "Reference Points, Social Norms, And Fairness In Contract Renegotiations," Journal of the European Economic Association, European Economic Association, vol. 13(1), pages 98-129, February.
    2. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Cathy Patillo & Måns Soderbom & Francis Teal & Albert Zeufack, 2000. "Contract flexibility and dispute resolution in African manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 36(4), pages 1-37.
    3. Amis, Philip, 1984. "Squatters or tenants: the commercialization of unauthorized housing in Nairobi," World Development, Elsevier, vol. 12(1), pages 87-96, January.
    4. Jordi Brandts & Matthew Ellman & Gary Charness, 2016. "Let’s Talk: How Communication Affects Contract Design," Journal of the European Economic Association, European Economic Association, vol. 14(4), pages 943-974.
    5. Leonardo Becchetti & Pierluigi Conzo & Alessandro Romeo, 2014. "Violence, trust, and trustworthiness: evidence from a Nairobi slum," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 283-305, January.
    6. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    7. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bartling, Björn & Grieder, Manuel & Zehnder, Christian, 2017. "Competitive pricing reduces wasteful counterproductive behaviors," Journal of Public Economics, Elsevier, vol. 156(C), pages 34-47.
    2. Sebastian Kunte & Meike Wollni & Claudia Keser, 2017. "Making it personal: breach and private ordering in a contract farming experiment," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 44(1), pages 121-148.
    3. Christoph Engel, 2021. "Crime as Conditional Rule Violation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2021_20, Max Planck Institute for Research on Collective Goods.
    4. Werner, Katharina & Graf Lambsdorff, Johann, 2016. "Emotional numbing and lessons learned after a violent conflict - Experimental evidence from Ambon, Indonesia," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-74-16, University of Passau, Faculty of Business and Economics.
    5. Conzo, Pierluigi & Salustri, Francesco, 2019. "A war is forever: The long-run effects of early exposure to World War II on trust," European Economic Review, Elsevier, vol. 120(C).
    6. Pierluigi Conzo, 2018. "Natural Disasters and Social Preferences: The Effect of Tsunami-Memories on Cheating in Sri Lanka," Journal of Development Studies, Taylor & Francis Journals, vol. 54(10), pages 1912-1931, October.
    7. El Bialy, Nora & Nicklisch, Andreas & Voigt, Stefan, 2017. "Risk-taking, Trust, and Traumatization of Refugees in Germany – A Field Experiment," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168221, Verein für Socialpolitik / German Economic Association.
    8. Adam Zylbersztejn & Zakaria Babutsidze & Nobuyuki Hanaki, 2021. "Predicting trustworthiness across cultures: An experiment," Post-Print hal-03432600, HAL.
    9. Mantilla, César & Zhou, Ling & Wang, Charlotte & Yang, Donghui & Shen, Suping & Seabright, Paul, 2021. "Favoring your in-group can harm both them and you: Ethnicity and public goods provision in China," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 211-233.
    10. Tore Ellingsen & Eirik Gaard Kristiansen, 2022. "Fair and Square: A Retention Model of Managerial Compensation," Management Science, INFORMS, vol. 68(5), pages 3604-3624, May.
    11. Oliver Hart, 2017. "Incomplete Contracts and Control," American Economic Review, American Economic Association, vol. 107(7), pages 1731-1752, July.
    12. Francesco Bogliacino & Gianluca Grimalda & Laura Jiménez & Daniel Reyes Galvis & Cristiano Codagnone, 2022. "Trust and trustworthiness after a land restitution program: lab-in-the-field evidence from Colombia," Constitutional Political Economy, Springer, vol. 33(2), pages 135-161, June.
    13. Chuang, Yating & Schechter, Laura, 2015. "Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results," Journal of Development Economics, Elsevier, vol. 117(C), pages 151-170.
    14. Anastasia Danilov & Dirk Sliwka, 2017. "Can Contracts Signal Social Norms? Experimental Evidence," Management Science, INFORMS, vol. 63(2), pages 459-476, February.
    15. Werner, Katharina, 2016. "Whom do people trust after a violent conflict? Experimental evidence from Maluku, Indonesia," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-73-16, University of Passau, Faculty of Business and Economics.
    16. Munoz-Herrera, Manuel & Reuben, Ernesto, 2019. "Business Culture: The Role of Personal and Impersonal Business Relationships on Market Efficiency," IZA Discussion Papers 12398, Institute of Labor Economics (IZA).
    17. Guoli Chen & Craig Crossland & Sterling Huang, 2020. "That Could Have Been Me: Director Deaths, CEO Mortality Salience, and Corporate Prosocial Behavior," Management Science, INFORMS, vol. 66(7), pages 3142-3161, July.
    18. Brown, Martin & Serra-García, Marta, 2014. "The Threat of Exclusion and Implicit Contracting," Working Papers on Finance 1407, University of St. Gallen, School of Finance, revised Jun 2016.
    19. Martin Brown & Marta Serra-Garcia, 2017. "The Threat of Exclusion and Implicit Contracting," Management Science, INFORMS, vol. 63(12), pages 4081-4100, December.
    20. El-Bialy, Nora & Fraile Aranda, Elisa & Nicklisch, Andreas & Saleh, Lamis & Voigt, Stefan, 2020. "Syrian Civil War Victims Trust Each Other, but Punish When and Whomever They Can," ILE Working Paper Series 40, University of Hamburg, Institute of Law and Economics.

    More about this item

    Keywords

    Institutional and Behavioral Economics; Risk and Uncertainty;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:gagfdp:205914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iagoede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.