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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.

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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.

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