I am teaching a course in contract theory based on the textbooks by Bolton/Dewatripont and Laffont/Martimort. 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, who test Hart and Moore’s 2008 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.


1 Answer 1


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. 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. 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. 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 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.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.