Feb. 22nd, Jordi Brandts Bernad, Ph.D. – Let’s Talk: How communication affects contract design.
The IFREE/ESI Lecture Series is free and open to the public. For more information on future lectures, please visit our website.
A video of the lecture will be posted here soon.
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.
Bio: Jordi Brandts holds a Ph. D. in Economics from the University of Pennsylvania. At present he is Research Professor, Serra-Ramoneda/Catalunya Caixa Chair at the Department of Business of the Universitat Autonoma de Barcelona and is also affiliated with the Instituto de Analisis Economico (CSICI) and the Barcelona Graduate School of Economics. His research is experimental in areas such as organizational economics, industrial organizational and the study of markets, conflict and the effects of communication on strategic interaction. From 2007-2011 he was co-editor of the journal Experimental Economics.