(Wednesday, 24th May 2017)
Title : Contracts as Reference Points
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Theory of contracts as reference points was introduced by 2016 Nobel Laureate Oliver Hart with John Moore. The basic idea is that the role of a contract is to shape the parties’ expectations and to get them ‘on the same page’ to avoid future misunderstandings. Misunderstandings cause parties to feel aggrieved and lead to shading in performance, causing deadweight losses. Contracts can be designed to minimise the deadweight losses.
Bibliographical references :
Must read reference : Hart, Oliver and John Moore. 2008. "Contracts as Reference Points." Quarterly Journal of Economics 123 (1): 1-48.
Fehr, Ernst, Oliver Hart and Christian Zehnder. 2011. "Contracts as Reference Points – Experimental Evidence." American Economic Review 101 (2): 493-525.
Halonen-Akatwijuka, Maija and Oliver Hart. 2016. "Continuing Contracts."