AEA RCT Registry

Trial Information

General Information

Title

Multiple Remedies Contracts with Optional Damage and Communication: An Experimental Study

RCT ID

AEARCTR-0012496

Initial registration date

November 13, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

November 18, 2023, 6:13 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Name

Siyu Wang

Affiliation

Wichita State University

Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status

On going

Start date

2021-10-01

End date

2024-04-30

Keywords

Behavior, Firms & Productivity, Lab

Additional Keywords

Contract

JEL code(s)

K12; C92; D8

Secondary IDs

Prior work

This trial does not extend or rely on any prior RCTs.

Abstract

We are examining the superiority of a contract that grants the non-breaching party the option to choose from various remedies compared to an exclusive remedy contract, and exploring the impact of communication on the contract process. Our focus is on conditions of double-sided uncertainty and asymmetric information between a seller (who might breach) and a buyer (who never breaches). Theoretically, if the buyer's conditional expected valuation is greater than the seller's conditional expected valuation, then a contract that allows the buyer to choose between liquidated damages or specific performance (or actual damages) is considered superior. We test the theoretical results in the laboratory. In addition, by introducing communication at the stage when the seller decides whether to deliver the goods, we are investigating whether cheap talk can enhance social welfare or benefit the seller more than the buyer.

External Link(s)

Registration Citation

Citation

Wang, Siyu. 2023. "Multiple Remedies Contracts with Optional Damage and Communication: An Experimental Study." AEA RCT Registry. November 18. https://doi.org/10.1257/rct.12496-1.0

Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)

We are examining the superiority of a contract that grants the non-breaching party the option to choose from various remedies compared to an exclusive remedy contract, and exploring the impact of communication on the contract process. Our focus is on conditions of double-sided uncertainty and asymmetric information between a seller (who might breach) and a buyer (who never breaches). Theoretically, if the buyer's conditional expected valuation is greater than the seller's conditional expected valuation, then a contract that allows the buyer to choose between liquidated damages or specific performance (or actual damages) is considered superior. We test the theoretical results in the laboratory. In addition, by introducing communication at the stage when the seller decides whether to deliver the goods, we are investigating whether cheap talk can enhance social welfare or benefit the seller more than the buyer.

Intervention Start Date

2021-10-01

Intervention End Date

2024-03-31

Primary Outcomes

Primary Outcomes (end points)

Acceptance Rate, Delivery Rate, Veto Rate, Profit, Consumer Surplus

Primary Outcomes (explanation)

Price, Damage

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

In this experimental procedure, participants are randomly assigned to groups of two, comprising one Seller and one Buyer. The Seller has the capacity to produce a product and offer it for sale to the Buyer. The cost of production is randomly determined between 0 and 600, with each integer having an equal likelihood. Similarly, the value of the product to the Buyer is randomly selected between 0 and 1000, again with equal probabilities for each integer. In the LD, there are three stages: proposing the contract (buyer), accept or reject the contract (seller), deliver the project or not after observing the cost(seller). In the OD, there is an additional 4th stage, where the buyer can decide whether to veto the action of not delivering the project. We add a cheap talk as additional treatments to see how communication between two parties can impact the outcome.

Experimental Design Details

Not available

Randomization Method

randomization done in office by a computer

Randomization Unit

individual randomly grouped into 2-person pair in every round.

Was the treatment clustered?

No

Experiment Characteristics

Sample size: planned number of clusters

N.A.

Sample size: planned number of observations

150 - 200 subjects.

Sample size (or number of clusters) by treatment arms

50-70 subjects in each treatment

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB

Institutional Review Boards (IRBs)

IRB Name

Wichita State University IRB

IRB Approval Date

2021-03-09

IRB Approval Number

4902

Analysis Plan