<p>There are a couple of papers by Hoppe-Schmitz in GEB that might be useful:</p>
<ol>
<li>Hoppe, E.I. and Schmitz, P.W., 2011. <a href="https://doi.org/10.1016/j.geb.2010.12.002" rel="noreferrer">Can contracts solve the hold-up problem? Experimental evidence.</a> <em>Games and Economic Behavior</em>, 73(1), pp.186-199.</li>
<li>Hoppe, E.I. and Schmitz, P.W., 2015. <a href="https://doi.org/10.1016/j.geb.2014.11.001" rel="noreferrer">Do sellers offer menus of contracts to separate buyer types? An experimental test of adverse selection theory.</a> <em>Games and Economic Behavior</em>, 89, pp.17-33.</li>
<li>Hoppe, E.I. and Schmitz, P.W., 2018. <a href="https://doi.org/10.1016/j.geb.2018.02.006" rel="noreferrer">Hidden action and outcome contractibility: An experimental test of moral hazard theory.</a> <em>Games and Economic Behavior</em>, 109, pp.544-564.</li>
</ol>
<p>I am most familiar with the first paper. It illustrates the hold-up (underinvestment) problem, shows that it cannot be solved by fixed-price contracts, but finds that it can be solved by option contracts (given full commitment). There is also a treatment on renegotiation; however, that is more relevant to the behavioral theories you mentioned. There actually is a <a href="https://economics-games.com/games" rel="noreferrer">website</a> with classroom games for teaching economics where one can find a single-player and a two-player online implementation of this experiment.</p>
<p>The second paper shows that in agency problems in which the agent has private information (adverse selection) it is indeed helpful to offer a menu of contracts; it also finds a simple version of the &quot;no distortions at the top&quot; result.</p>
<p>The third paper illustrates some basic aspects of moral hazard models where the agent must be incentivized to choose a hidden action and contracts may be conditioned on an outcome that stochastically depends on the action.</p>

CC BY-SA 4.0
2022-03-25T23:52:13.497Z
2022-03-25T23:52:13.497Z
framue
<p>I am teaching a course in contract theory based on the textbooks by <a href="https://mitpress.ublish.com/book/contract-theory" rel="noreferrer">Bolton/Dewatripont</a> and <a href="https://press.princeton.edu/books/paperback/9780691091846/the-theory-of-incentives" rel="noreferrer">Laffont/Martimort</a>. I would like to briefly present some lab experiments to illustrate basic insights of standard contract theory. Unfortunately, the textbooks do not mention any experiments at all.</p>
<p>I have found several experiments related to contract theory, but usually they seem to test a specific behavioral theory (such as <a href="https://www.econstor.eu/handle/10419/35739" rel="noreferrer">Fehr et al. 2011</a>, who test <a href="https://doi.org/10.1162/qjec.2008.123.1.1" rel="noreferrer">Hart and Moore’s 2008</a> non-standard contracts-as-reference-point theory). Following the above-mentioned textbooks, in my introductory course I do not talk about behavioral economics (this is the topic of several other courses). I am interested in simple standard results (such as the no-distortion-at-the-top result in principal-agent models with asymmetric information or the underinvestment result in incomplete contracting models). I am looking for experiments in the spirit of the early work by Vernon Smith that illustrated concepts of traditional micro theory.</p>
<p>I guess there should be several papers that in their baseline treatments do what I am looking for, but it is somewhat difficult to find this work because the authors tend to highlight the deviations from standard theory that they explore in their main treatments.</p>

<reference-request><contract-theory><contracts>
Lab experiments for a course in standard contract theory
dan84
# Lab experiments for a course in standard contract theory

(Asked by: username_0 on 2022-03-22)

I am teaching a course in contract theory based on the textbooks by [Bolton/Dewatripont](https://mitpress.ublish.com/book/contract-theory) and [Laffont/Martimort](https://press.princeton.edu/books/paperback/9780691091846/the-theory-of-incentives). I would like to briefly present some lab experiments to illustrate basic insights of standard contract theory. Unfortunately, the textbooks do not mention any experiments at all.

I have found several experiments related to contract theory, but usually they seem to test a specific behavioral theory (such as [Fehr et al. 2011](https://www.econstor.eu/handle/10419/35739), who test [Hart and Moore’s 2008](https://doi.org/10.1162/qjec.2008.123.1.1) non-standard contracts-as-reference-point theory). Following the above-mentioned textbooks, in my introductory course I do not talk about behavioral economics (this is the topic of several other courses). I am interested in simple standard results (such as the no-distortion-at-the-top result in principal-agent models with asymmetric information or the underinvestment result in incomplete contracting models). I am looking for experiments in the spirit of the early work by Vernon Smith that illustrated concepts of traditional micro theory.

I guess there should be several papers that in their baseline treatments do what I am looking for, but it is somewhat difficult to find this work because the authors tend to highlight the deviations from standard theory that they explore in their main treatments.

**Tags:** reference-request, contract-theory, contracts


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## 1 answers

### Answer by username_1 on 2022-03-25. Score: 7

There are a couple of papers by Hoppe-Schmitz in GEB that might be useful:

1. Hoppe, E.I. and Schmitz, P.W., 2011. [Can contracts solve the hold-up problem? Experimental evidence.](https://doi.org/10.1016/j.geb.2010.12.002) *Games and Economic Behavior*, 73(1), pp.186-199.
2. Hoppe, E.I. and Schmitz, P.W., 2015. [Do sellers offer menus of contracts to separate buyer types? An experimental test of adverse selection theory.](https://doi.org/10.1016/j.geb.2014.11.001) *Games and Economic Behavior*, 89, pp.17-33.
3. Hoppe, E.I. and Schmitz, P.W., 2018. [Hidden action and outcome contractibility: An experimental test of moral hazard theory.](https://doi.org/10.1016/j.geb.2018.02.006) *Games and Economic Behavior*, 109, pp.544-564.

I am most familiar with the first paper. It illustrates the hold-up (underinvestment) problem, shows that it cannot be solved by fixed-price contracts, but finds that it can be solved by option contracts (given full commitment). There is also a treatment on renegotiation; however, that is more relevant to the behavioral theories you mentioned. There actually is a [website](https://economics-games.com/games) with classroom games for teaching economics where one can find a single-player and a two-player online implementation of this experiment.

The second paper shows that in agency problems in which the agent has private information (adverse selection) it is indeed helpful to offer a menu of contracts; it also finds a simple version of the "no distortions at the top" result.

The third paper illustrates some basic aspects of moral hazard models where the agent must be incentivized to choose a hidden action and contracts may be conditioned on an outcome that stochastically depends on the action.


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