INCOMPLETE CONTRACTING: A LABORATORY EXPERIMENTAL ANALYSIS

Economic Inquiry - Tập 31 Số 2 - Trang 274-297 - 1993
Steven C. Hackett1
1*Department of Economics, Indiana University, Bloomington, IN 47405. This paper has benefitted from helpful comments by three anonymous referees and coeditors Thomas Borcherding and Rodney Smith. I would also like to thank Ray Battalio, Dave Besanko, Ken Binmore, Miguel Delgado, Roy Gardner, Ron Johnson, Charles Kahn, Tom Lyon, Jimmy Walker, Steve Wiggins, Arlie Williams, and Doug Young. Support from the Workshop in Political Theory and Policy Analysis at Indiana University is gratefully acknowledged. All data are stored on permanent disk files and are available on request.

Tóm tắt

Incomplete contracts are motivated by difficulties in specifying contingent responses to unforeseen change in long‐term trading relationships. The issues can be parsimoniously represented in a two‐period model. Parties first make transaction‐specific investment that enhances value or reduces cost. Surplus is then realized, and bargaining divides the surplus and completes the contract. The testable hypothesis is that realized surplus shares are independent of sunk investments. This is strongly rejected using laboratory experimental methods. Failure of the prediction affects the expected profitability of contracts.

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Economic Inquiry

Tập 31 Số 2

274-297

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