Ex Post (In) Efficient Negotiation and Breakdown of Trade
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Iyer_Ex post.pdf
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Author(s)
Iyer, Rajkamal
Schoar, Antoinette
Date Issued
May 2015
Journal
American Economic Review
Publisher
American Economic Association
Citation
Iyer, Rajkamal, and Antoinette Schoar. “Ex Post (In) Efficient Negotiation and Breakdown of Trade.” American Economic Review 105, no. 5 (May 2015): 291–294. © 2015 American Economic Association
Version
Final published version
Abstract
This paper examines frictions in contract renegotiation and its implications for allocative efficiency of contracts. Using a novel audit study methodology, we find that contracting parties in general are reluctant to engage in hold up. However, many efficient renegotiations of contracts also do not happen for the fear of being seen as extracting surplus. We also find that ex ante contracts are structured to mitigate losses arising from breach risk rather than hold up. The results also highlight that role of norms of fairness and reputation concerns in sustaining transactions in settings where contracts are primarily incomplete.
MIT Department
Sloan School of Management
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.p20151077
