Let's talk : how communication affects contract design
Brandts, Jordi
Charness, Gary
Ellman, Matthew
Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica
Universitat Autònoma de Barcelona. Institut d'Anàlisi Econòmica

Date: 2012
Description: 52 p.
Abstract: We study experimentally how the ability to communicate affects the frequency and effectiveness of flexible and inflexible contracts in a bilateral trade context where sellers can adjust trade quality after observing a post-contractual cost shock and a discretionary buyer transfer. In the absence of communication, we find that rigid contracts are more frequent and lead to higher earnings for both buyer and seller. By contrast, in the presence of communication, flexible contracts are much more frequent and considerably more productive, both for buyers and sellers. Also, both buyer and seller earn considerably more from flexible with communication than rigid without communication. Our results show quite strongly that communication, a normal feature in contracting, can remove the potential cost of flexibility (disagreements caused by conflicting perceptions). We offer an explanation based on social norms.
Rights: Tots els drets reservats
Language: Anglès.
Series: Working papers
Series: Working papers ; 908.12
Document: workingPaper
Subject: Communication, contracts, perceptions and cooperation. ; Communication ; Contracts ; Perceptions and cooperation

Adreça alternativa: https://hdl.handle.net/2072/204097

52 p, 542.7 KB

The record appears in these collections:
Research literature > Working papers > Fundamentals Unit of the Economic Analysis. Working papers

 Record created 2012-12-11, last modified 2019-12-17

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