Can Relational Contracts Survive Stochastic Interruptions ? Experimental Evidence

  title={Can Relational Contracts Survive Stochastic Interruptions ? Experimental Evidence},
  author={Sera Linardi and Colin F. Camerer},
This paper investigates the robustness of the “two-tiered labor market” experimental results of Brown, Falk and Fehr (2004) by subjecting relationships to stochastic interruptions. We focus on the impact of demand shocks in which firms cannot hire workers for three periods. Our experimental results confirm the theoretical prediction that market efficiency will be unaffected by these low probability exogenous interruptions, however, a dramatically improved public market and shorter relationships… CONTINUE READING
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