Arbeitspapier

Strategic Incomplete Contracts: Theory and Experiments

We develop a model of strategic contractual incompleteness that identifies conditions under which principals might omit even costlessly verifiable terms. We then use experiments to test comparative statics predictions of the model. While it is well known that verifiability imperfections can limit complete contracting, researchers know less about how the degree of imperfection affects endogenous incompleteness, particularly with repeat trading. In our baseline treatment with perfect verifiability, subjects overwhelmingly used complete contracts to conduct trades, achieving nearly first best outcomes. In our partial verifiability treatment with a reduced set of verifiable performance levels, the results reversed and parties relied heavily on incomplete contracts that omitted even costlessly verifiable terms. However, the efficacy of incomplete contracts in outperforming available complete contracts depends critically on the continuation probability of repeat trading. With a small continuation probability, incomplete contracts did no better than complete contracts while exposing parties to considerable strategic uncertainty.

Sprache
Englisch

Erschienen in
Series: IZA Discussion Papers ; No. 8704

Klassifikation
Wirtschaft
Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
Design of Experiments: Laboratory, Individual
Economics of Contract: Theory
Labor Contracts
Transactional Relationships; Contracts and Reputation; Networks
Contracting Out; Joint Ventures; Technology Licensing
Personnel Economics: Compensation and Compensation Methods and Their Effects
Thema
incomplete contract
relational contract
endogenous incompleteness
informal incentives
experimental economics

Ereignis
Geistige Schöpfung
(wer)
Erkal, Nisvan
Wu, Steven Y.
Roe, Brian E.
Ereignis
Veröffentlichung
(wer)
Institute for the Study of Labor (IZA)
(wo)
Bonn
(wann)
2014

Handle
Letzte Aktualisierung
20.09.2024, 08:25 MESZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Erkal, Nisvan
  • Wu, Steven Y.
  • Roe, Brian E.
  • Institute for the Study of Labor (IZA)

Entstanden

  • 2014

Ähnliche Objekte (12)