Journal
MANAGEMENT SCIENCE
Volume 58, Issue 1, Pages 62-77Publisher
INFORMS
DOI: 10.1287/mnsc.1110.1341
Keywords
experiment; norms; incomplete contracts
Funding
- National Science Foundation
- Sperry Fund
Ask authors/readers for more resources
We argue that contracts establish the norms of a relationship and that individuals incur disutility when deviating from these norms. In a laboratory experiment, we allow agents to make simple contracts before they play one of four games, and the most effective contract always includes an unenforceable handshake agreement to take the first-best action. In three games, a contract with only this handshake agreement is (at least weakly) optimal. The handshake is particularly effective in games with strategic complements. Our results highlight an explanation for contractual incompleteness: establishing a norm can effectively substitute for weak enforceable restrictions.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available