nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2021‒01‒11
three papers chosen by
Guillem Roig
University of Melbourne

  1. Designing and Negotiating Agreements in a Digitalized Era – a qualitative analysis By Andrén, Daniela; Kellgren, Jan; Kristoffersson, Eleonor
  2. Determinants of Relational Contract Performance: Experimental Evidence By Wu, Steven Y.
  3. Heterogeneous group contests with incomplete information By Vasudha Chopra; Hieu M. Nguyen; Christian A. Vossler

  1. By: Andrén, Daniela (Örebro University School of Business); Kellgren, Jan (Linköping University); Kristoffersson, Eleonor (Örebro University School of Law, Psychology and Social Work)
    Abstract: Digitalization is a reality that governs more and more both the society and the economy, facilitating new and more efficient ways of setting up business and business collaborations. Rational agreement routines and well thought through contracts help organizations to avoid legal disputes and thus maintain long-term relations with customers and suppliers. Therefore, a digitalized platform where non-lawyers (purchasers, sellers) in a user-friendly interface can draft individual contracts without lawyers is expected to both increase the companies’ labor productivity and to facilitate the evaluation of risks and opportunities over time. To our knowledge, there is very little known about the agreement routines and the firms’ interest of making them more efficient using digital solutions. Based on semi-structured interviews that we carried out in Sweden during the autumn 2019, we found that companies and authorities are not fully in control of their agreements, when it comes to for example the origin of the agreements, the agreement routines, the storage of agreement and authorized signatures and do not fully use the potential of digital tools for managing and negotiating contracts. Unexpectedly, organizations seem to be of the opinion that the current, a little bit unmodern, system actually works for them. Therefore, new digital tools and/or digital platforms must really meet the needs of the organizations to correspond to the investment for it. Our interviews suggest that new simple digital solutions might be appreciated and used.
    Keywords: digital services; negotiations of agreements; legal tech company; lawyers; contracts and reputation.
    JEL: D86 K10 K19 K20 L14 L24 L33
    Date: 2020–12–31
  2. By: Wu, Steven Y.
    Abstract: This study examines the determinants of relational contractual performance using data from a series of laboratory experiments. There is currently limited empirical evidence on the determinants of contractual performance, which includes contractual acceptance, and the delivery of promised quantity/quality under the terms of the contract. While theory predicts that the primary drivers of contractual performance are high discount factors, and contract designs that obey individual rationality and self-enforcement constraints, the empirical analysis suggests that other determinants such as a history of prior cooperation can matter as much, if not more, than the theoretical constraint conditions.
    Keywords: Financial Economics, Research Methods/ Statistical Methods
    Date: 2021–01
  3. By: Vasudha Chopra (Department of Economics, University of Tennessee); Hieu M. Nguyen (Department of Economics, University of Tennessee); Christian A. Vossler (Department of Economics, University of Tennessee)
    Abstract: This study examines how behavior in inter-group contests is altered when players have incomplete information on their opponent. We model a Tullock contest where there are two possible types of groups that are heterogeneous in the incentives they face, and players only know the probability their opponent is a particular group type. Relative to a contest with complete information, we find theoretically that incomplete information lowers contest-level effort in (even) contests between groups of the same type, whereas it increases effort in uneven contests. Through an experiment, we compare three sources of heterogeneity – differences in cost-of-effort, prize value, and group size. For the cost and value treatments, we find that incomplete information increases effort in uneven contests but has no effect in even contests. For the group size treatments, incomplete information has no effect. A theory that assumes players are altruistic towards group members, rather than purely self-interested, is much better at predicting outcomes.
    Keywords: inter-group competition; heterogeneous contests; Tullock contests; incomplete information; public goods; group size paradox; experiments; altruism
    JEL: C72 C92 D74 D82 D91 H41
    Date: 2020–12

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