Experimental Economics Seminar for March 1

Seminars | February 23, 2013

Join us for the next ICES Experimental Economics Seminar of the semester, featuring Jordi Brandts.

Professor Brandts, of the Barcelona Graduate School of Business, will discuss his paper (co-authored with Gary Charness, and Matthew Ellman) Let’s Talk: How Communication Affects Contract Design. The talk will take place on Friday, March 1st, from 10:45am to 12:oopm, in the Carow Hall Lecture Hall, Fairfax campus.

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.

Visit the Seminar schedule to learn more about upcoming speakers.

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