We propose a theory of ex post inefficient renegotiation that is based on loss aversion. When two parties write a long-term contract that has to be renegotiated after the realization of the state of the world, they take the initial contract as a reference point to which they compare gains and...

We propose a theory of ex post inefficient renegotiation that is based on loss aversion. When two parties write a long-term contract that has to be renegotiated after the realization of the state of the world, they take the initial contract as a reference point to which they compare gains and...

Chapter written for the Handbook of Reciprocity, Gift-Giving and Altruism

This paper surveys recent experimental and field evidence on the impact of concerns for fairness, reciprocity and altruism on economic decision making. It also reviews some new theoretical attempts to model the observed behavior.