Journal article

Putting Relational Contract Theory to the Test: Experimental Evidence

Nisvan Erkal, Steven Y Wu, Brian E Roe

Experimental Economics | Springer (part of Springer Nature) | Published : 2021

Abstract

We investigate a number of canonical predictions that arise from relational contract theory. Employing an experimental design with endogenous choice of contract type, we find considerable experimental support for several well-established predictions, including a preference for informal agreements when third-party verification of performance is coarse, greater opportunistic behavior when the discount factor decreases, and a tendency toward strategic ambiguity (Bernheim and Whinston, 1998). However, two findings that appear to be inconsistent with theory are that (1) subjects tend to contract for suboptimal performance levels even when self-enforcement of optimal levels is possible; and (2) su..

View full abstract

University of Melbourne Researchers