@article {9778,
	title = {Contracts as Reference Points},
	journal = {Quarterly Journal of Economics},
	volume = {CXXIII},
	number = {1},
	year = {2008},
	pages = {1-48},
	abstract = {We argue that a contract provides a reference point for a trading relationship:  more precisely, for parties{\textquoteright} feelings of entitlement. A party{\textquoteright}s ex post performance  depends on whether he gets what he is entitled to relative to outcomes permitted  by the contract. A party who is shortchanged shades on performance. A flexible  contract allows parties to adjust their outcomes to uncertainty but causes ineffi-  cient shading. Our analysis provides a basis for long-term contracts in the absence  of noncontractible investments and elucidates why {\textquotedblleft}employment{\textquotedblright} contracts, which  fix wages in advance and allow the employer to choose the task, can be optimal.
},
	author = {Oliver Hart and John Moore}
}
