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Dr. Björn Bartling

University of Zurich, Switzerland

Authors: Björn Bartling and Klaus M. Schmidt

Abstract:

We conducted experiments to address recent ideas by Hart and Moore (2008) that contracts shape trading parties’ feelings of entitlement. We implemented environments where a buyer and a seller can contract about the price and a future delivery time of a good. Ex-post it can be efficient to adjust the delivery time to uncertainty. We show that contracts serve as reference points in renegotiations relative to situations where outside options are exogenously given and not defined by ex-ante contracts. We further show that the competitive pressure under which contracts are closed affects the drawing power of ex-ante contracts in renegotiations.

Full Text: “Reference Points in Renegotiation: The Roles of Contracts and Competition”