Two part tariffs, demand uncertainty and risk sharing: From theory to experimental evidence

Last registered on November 21, 2021

Pre-Trial

Trial Information

General Information

Title
Two part tariffs, demand uncertainty and risk sharing: From theory to experimental evidence
RCT ID
AEARCTR-0008576
Initial registration date
November 16, 2021

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 21, 2021, 11:26 AM EST

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

Locations

Primary Investigator

Affiliation
University Grenoble Alpes

Other Primary Investigator(s)

PI Affiliation
INRAE
PI Affiliation
University Grenoble Alpes

Additional Trial Information

Status
On going
Start date
2021-11-15
End date
2022-03-21
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
The economic literature dealing with vertical contracts with two part-tariffs is extensive. However, very few works have considered these contracts in an uncertain environment (see Rey and Tirole, 1986). To our knowledge, there is neither a general theoretical framework nor experimental work that analyze risk sharing in this setting.

First, we elaborate a general theoretical framework incorporating a vertical contract offer with uncertainty about the realisation of the final demand. The contract offerer (Proposer) proposes a two part tariff contract (w, T) to be taken or left to the contract receiver (Responder), with w the variable part and T the fixed part of the contract. The utility functions of the Proposer and the Responder of the contract consider risk aversion and conform to the expected utility theory. For any utility function having the properties of a Von Neuman Morgenstern, the model predicts that w is used to share risk such as w is positive (whereas w is null in a certain environment).

Second, we run a lab experiment in a perfect strangers matching design to assess the model propositons. In the experiment, we control for the subjects' risk aversion by performing a risk test (Eckel and Grossman, 2002). We propose treatments that vary the level of demand uncertainty.
External Link(s)

Registration Citation

Citation
BONROY, Olivier , Alexis GARAPIN and Nicolas PASQUIER. 2021. "Two part tariffs, demand uncertainty and risk sharing: From theory to experimental evidence." AEA RCT Registry. November 21. https://doi.org/10.1257/rct.8576
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
The experiment is divided into three different treatments:
- A baseline treatment with no demand uncertainty
- A second treatment with a low level of demand uncertainty
- A third treatment with a high level of demand uncertainty
Intervention Start Date
2021-11-15
Intervention End Date
2021-11-30

Primary Outcomes

Primary Outcomes (end points)
The level of risk aversion as measured by the risk test (Eckel and Grossman test)
The contract offered (pair w, T)

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Whether the contract is accepted or refused
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
In the experiment subjects perform first the risk test and then they play the two part tariffs game. In the game, the proposer offers a contract (w, T) and the responder accepts or refuses the contract. The experiment uses an abstract framing. The proposer offers a contract by setting a value for two "instruments" (one instrument corresponds to w, the other one to T). Both Proposer and Responder can simulate the payoffs corresponding to each pair of values.

The subjects are randomly assigned to one out of three different treatments (between subjects design). In each treatment, every subject first performs the risk aversion test. Then they play the game with perfect stranger re-matching in each new round (the role, either Proposer or Responder, is randomly drawn and they keep this role till the end of the game). Before they play, they are informed of the other's lottery choice in the risk test.

Each treatment varies the level of uncertainty (no uncertainty, low uncertainty, high uncertainty).
Experimental Design Details
Randomization Method
Randomization made by computer (Hroot)
Randomization Unit
Individual (student)
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
Non relevant
Sample size: planned number of observations
9 sessions for a total of 234 subjects
Sample size (or number of clusters) by treatment arms
78 students per treatment (three treatments)
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
Gael laboratory
IRB Approval Date
2021-07-09
IRB Approval Number
N/A

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials