Endowment effects within corporate agency relationships

Jennifer Arlen, Matthew Spitzer, Eric Talley

    Research output: Contribution to journalArticlepeer-review

    42 Scopus citations

    Abstract

    Behavioral economics is an increasingly prominent field within corporate law scholarship. A particularly noteworthy behavioral bias is the "endowment effect" - the observed differential between an individual's willingness to pay to obtain an entitlement and her willingness to accept to part with one. Should endowment effects pervade corporate contexts, they would significantly complicate much common wisdom within business law, such as the presumed optimality of ex ante agreements. Existing research, however, does not adequately address the extent to which people manifest endowment effects within agency relationships. This article presents an experimental test for endowment effects for subjects situated in an agency relationship that typifies many firms. We find that subjects do not exhibit significant endowment effects. An additional experimental test suggests that this finding may be largely due to framing: subjects situated as "agents" may view entitlements principally in terms of exchange value, thereby dampening endowment.

    Original languageEnglish (US)
    Pages (from-to)1-37
    Number of pages37
    JournalJournal of Legal Studies
    Volume31
    Issue number1 I
    DOIs
    StatePublished - Jan 2002

    ASJC Scopus subject areas

    • Law

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