Contracts as Reference Points: A Replication

Abstract

Abstract We replicate two treatments of an experimental theory test ( Fehr et al., 2011 ) studying Hart and Moore (2008) ’s idea that contracts serve as reference points in trading relationships. In contrast to rigid contracts, flexible contract terms may be perceived in a self-serving manner and, therefore, the contract parties might form subjective entitlements. This reference-dependent perception of flexible contract terms leads to a trade-off of the contractual form. While flexible contracts are, in theory, deemed preferable to rigid contracts, frustrated subjective entitlements may lead to perfunctory performance and shading behavior that is absent in rigid contracts. The results of our replication are mixed. Our findings imply further support for Hart and Moore (2008) ’s contracts as reference point hypothesis. However, our replication does not provide reliable evidence for the idea that competition creates objectivity and enhances perceived fairness of the contract terms.