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Contracting under asymmetric information and externalities: an experimental study

Nieken, Petra ORCID iD icon 1; Schmitz, Patrick W.
1 Institut für Unternehmungsführung (IBU), Karlsruher Institut für Technologie (KIT)

Abstract:

We investigate contract negotiations in the presence of externalities and asymmetric information in a controlled laboratory experiment. In our setup, it is commonly known that it is always ex post efficient for player A to implement a project that has a positive external effect on player B. However, player A has private information about whether or not it is in player A’s self-interest to implement the project even when no agreement with player B is reached. Theoretically, an ex post efficient agreement can always be reached if the externality is large, whereas this is not the case if the externality is small. We vary the size of the externality and the bargaining process. The experimental results are broadly in line with the theoretical predictions. However, even when the externality is large, the players fail to achieve ex post efficiency in a substantial fraction of the observations. This finding holds in ultimatum-game bargaining as well as in unstructured bargaining with free-form communication.


Verlagsausgabe §
DOI: 10.5445/IR/1000164619
Veröffentlicht am 28.11.2023
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Unternehmungsführung (IBU)
Publikationstyp Zeitschriftenaufsatz
Publikationsmonat/-jahr 11.2023
Sprache Englisch
Identifikator ISSN: 1386-4157, 1573-6938
KITopen-ID: 1000164619
Erschienen in Experimental Economics
Verlag Springer
Band 26
Heft 5
Seiten 989–1021
Vorab online veröffentlicht am 04.11.2023
Nachgewiesen in Scopus
Dimensions
Web of Science
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