Choosing and Not Choosing with and without Communication: Experimental Results on Contract Design and Selection

This paper studies selection and procedural effects in experimental contracting when sellers choose unenforceable trade quality after a possible cost shock. Brandts, Charness, and Ellman (2016) investigate how communication affects behavior and outcomes in contracts with rigid prices, relative to contracts where buyers can raise prices after observing the shock. An important remaining question is how behavior is affected by whether contract type is endogenous or experimenterimposed. Different sorts of buyers may select contract types differently and sellers may respond differently when contract type is endogenous. Surprisingly, we find only modest effects. We draw lessons for experimental design.