Contract Framing Research Articles

Psychological Impact of Contract Frames on Specific and Ambiguous Alliance Investments

Psychological Impact of Contract Frames on Specific and Ambiguous Alliance Investments

The Effect of Narcissism and Contract Frame on Employee Performance in the Presence of an Ex Ante Target

ABSTRACT Incentive contracts containing ex ante targets are prevalent in organizations. Although prior research indicates that contract frame has no significant impact on employee performance when an ex ante target is assigned, we provide a more nuanced view by examining the role of narcissism in this relationship. Results indicate when an ex ante target is assigned, less narcissistic employees perform better than more narcissistic employees regardless of contract frame. In addition, target difficulty plays a role. When narcissism is lower, employees working under a less difficult target perform better than those working under a more difficult target, but there is no effect of contract frame. When narcissism is higher, we find an interaction between contract frame and target difficulty. When the target is less difficult, employees higher in narcissism perform better under the penalty than the bonus contract frame, whereas the opposite is the case when the target is more difficult. Data Availability: Data are available from the authors upon request. JEL Classifications: M41.

The show must go on: The role of contract frames in safeguarding relationship continuity

The show must go on: The role of contract frames in safeguarding relationship continuity

Overconfidence and Contract Framing

ABSTRACT Prior contract framing research finds that agents generally choose to provide greater effort under penalty contracts than under economically equivalent bonus contracts. At the same time, many individuals tend to be overconfident in their own abilities, which may alter agents’ expectancies when making effort provision decisions. In this study, we extend the contract framing literature by conducting an experiment in which participants can improve the likelihood of earning a bonus or avoiding a penalty by providing greater costly effort and by performing well on the experimental task. We find that participants who are not overconfident in their ability to perform the task well exhibit the general contract framing effect, whereas overconfident participants do not. This suggests that for work tasks where production is a function of both effort and ability, the preponderance of overconfident individuals consistent with the “better-than-average effect” mutes the effect of contract framing on effort. Data Availability: Contact the authors. JEL Classifications: M49; M12; M11.

The Influence of Controllability and Outcome Valence on Cost-Shifting

ABSTRACT In a setting that considers both operational and accounting decentralization, we propose that controllability and outcome valence effects (i.e., positive versus negative contractual outcomes for managers) interact to affect managers’ misreporting behavior. Experimental results show that the level of cost-shifting under negative outcome valence is relatively invariant to the amount of control over a project’s results, whereas the decision to engage in cost-shifting under positive outcome valence is contingent upon whether the manager had control or not. We contribute to the management accounting literature on contract framing and misreporting and extend research on how decentralization choices affect managers’ use of private information, with direct implications for practice. Our results suggest that limiting individual managers’ operational control primarily to constrain misreporting may only be beneficial when contracts stipulate positive outcomes for managers.

The Effect of Prepayment Contract Frames and Feedback on Budgetary Slack: An Experimental Investigation

Introduction/Main Objectives: This research investigates the effect of prepayment contract frames and feedback incentives in mitigating budgetary slack. Background Problems: Clawback is an incentive scheme based on the endowment concept that has recently drawn researchers’ concerns. The literature suggests emphasizing the endowment and loss aversion concepts. This research examines these two concepts with one test model. Novelty: This research presents the preliminary manipulation role of hybrid clawback as one of the prepayment contract frames that are smoother and without penalty provisions. This study also examines the interaction between the concept of endowment and loss aversion in one test model. Research Methods: This research applied a field experiment with a 3 × 2 between-subject design. Finding/Results: This research found that prepayment contract frames require motivation from an adequate formal control system through frequent feedback to mitigate the slack. The findings prove that the capability of prepayment contract frames to minimize slack would be more effective after the frequency of the feedback has been moderated. Conclusion: The hybrid clawback could be a smoother alternative compensation scheme that is just as effective as a simple clawback, but without any penalty provisions. The effectiveness of a low feedback frequency could be increased to equal the efficacy of a high feedback frequency when assisted by prepayment contract frames.

Drawing Partnership on Paper: How do the Forms for Individual Educational Plans Frame Parent - Teacher Relationship?

This article examines the Individual Educational Plan forms (hereafter IEP forms) used in planning for a child’s early childhood education and care (ECEC) in Finnish day care from the perspectives of social constructionism and discourse analysis. The National Curriculum Guidelines on Early Childhood Education and Care (Stakes, 2004 & 2005) require an Individual Educational Plan (IEP) to be drawn up for each child. Municipalities typically develop a local IEP form to be used in parent-teacher meetings at which the child’s IEP is discussed. The study examines how these IEP forms construct and frame parental and professional involvement in individual ECEC planning, and demonstrates that the positions of the parties in the IEP forms can be illustrated by two frames: an interview frame and a contract frame. These frames are considered in the present article in relation to the aims and principles articulated in the National Curriculum Guidelines on ECEC, which define the parent-teacher relationship as representing a partnership. The article also discusses the implications of the governing functions of the IEP forms from the perspective of the parent and the teacher.

You, Me, Us? The Role of Collective Identity Contract Framing in the Face of Alliance Disruptions

You, Me, Us? The Role of Collective Identity Contract Framing in the Face of Alliance Disruptions

Contract farming as an alternative to large‐scale land acquisition and promoting inclusive and responsible agricultural investment: Evidences from Ethiopia

AbstractThe acquisition of large tracts of land for agricultural investment from developing countries, including Ethiopia, by commercial firms has been aggravated after global food crisis in 2007–2008. Given the current attention to large‐scale land acquisition or land grabbing phenomenon, contract farming has been identified as a participatory and inclusive farming model which does not require agricultural firms to purchase or lease land in order to operate agricultural investments. Contract farming enables local smallholder farmers to produce agricultural products on their own land and ensure the benefits of land‐based agricultural investments remain with them. Unfortunately, the understanding and practice of contract farming as an alternative to large‐scale land acquisition to protect the land rights of the local people is underexplored in Ethiopia. This study, therefore, is aimed to examine the practice and conceptual understanding of contract farming in the context of agricultural investment in Ethiopia. To achieve this objective, mixed research approach was employed. Intensive document reviews, questionnaire, key informant interview and FGD were used as data collection tools. The results show that the practice of contract farming in Ethiopia is very insignificant and commercial farming is almost entirely relied on land acquisition. Moreover, gaps in policy and legal framework to guide contract farming has made difficult to effectively implement contract framing at national level. Finally, this study advised to introduce contract framing as a viable alternative to land acquisition for agricultural investment that fosters local smallholder farmers' participation in agricultural production and contributes to sustainable development.

Ambiguous Sticks and Carrots: The Effect of Contract Framing and Payoff Ambiguity on Employee Effort

ABSTRACT Research suggests that employees work harder under penalty contracts than under economically equivalent bonus contracts. We build on this literature by examining how the motivational advantage of penalty contracts depends on a common aspect of real-world contracts: payoff ambiguity. With payoff ambiguity, employees provide effort without knowing how much pay they will receive for a given level of performance. According to our theory, this ambiguity opens the door for employee optimism, which has contrasting effects under each contract frame. Results from an experiment support this theory, with an increase in ambiguity leading to less employee effort with penalty contracts (as employees optimistically expect small penalties) and more effort with bonus contracts (as employees optimistically expect large bonuses). We also find that these effects are stronger for more dispositionally optimistic employees. Overall, our results suggest that bonus contracts may be more motivating and penalty contracts less motivating than previously thought.

Narcissism in the workforce: How employees respond to contract frame

Narcissism in the general population has risen over time; thus, it is likely that firms will hire a greater proportion of more narcissistic employees into their ranks. In two experiments, we examine whether and how narcissism impacts employees’ contract preferences and performance depending on the contract frame. When contracts are assigned, more narcissistic employees perform worse than less narcissistic employees under a penalty-framed contract and no different from less narcissistic employees under a bonus-framed contract. When employees have contract choice, more narcissistic employees prefer bonus-framed contracts over penalty-framed contracts while less narcissistic employees are relatively indifferent between them. Even so, this preference does not appear to impact performance as more narcissistic employees continue to perform worse than less narcissistic employees under a penalty-framed contract and no different from less narcissistic employees under a bonus-framed contract in our condition with contract choice. Therefore, narcissism is an important individual characteristic to consider when designing incentive contracts.

Contracting for innovation: Designing contracts that account for exchange hazards and the need for innovation

AbstractResearch SummaryWe examine how organizations govern interfirm transactions that involve innovative tasks. Designing contracts that foster innovation is challenging and becomes more complex when exchange hazards are present. We draw on regulatory focus theory to examine the effects of promotion and prevention effects in contract framing contracts to address how firms should design their contracts to balance the need for promoting innovation and protecting against opportunistic behavior. Using a sample of contracts from the information technology services industry, we find that in the presence of exchange hazards, task innovation involves hybrid payment systems, less use of detailed description of requirements, and more use of extensive contingency planning.Managerial SummaryManagers must understand how contract design can aid in the success of interfirm innovation endeavors as radical innovation is frequently developed in an interfirm context. Our findings suggest that contract negotiators should pay special attention to several contractual elements when designing contracts for tasks that require more radical innovation. In particular, the payment structure, specifications of outcomes and processes, and contingency planning clauses influence the innovative output of suppliers. Employees who understand the task should participate in contract negotiation and design, allowing them to outsource more innovative tasks and manage them more effectively.

Nuorten insinöörien psykologinen sopimus teknologiateollisuudessa

Psychological contracts of young engineers in technology industry This article explores the relationship and commitment of young engineers to their employers from the theoretical frame of psychological contracts. The understanding of such contracts is vital to organizations when attracting good employees and retaining them. The research questions focus on how young engineers build psychological contracts to employers and how line managers and HR personnel describe the same contract. The interview data are collected in four energy technology companies during 2012-2016 in Vaasa region. We show how young engineers have a loose relationship to the employer organization but a stronger one to their supervisor. Furthermore, young engineers show strong commitment to their own careers but vague understanding of the employer’s expectations for them. This outcome questions traditional psychological contracts and supports new psychological contracts that connect to oneself or one’s career aspirations.

Mitigating risk perception in imbalanced supply chain relationships: roles of contract framing and IT integration

PurposeThis paper aims to investigate that how to mitigate the weaker party's risk perception in imbalanced supply chain relationships by framing contracts according to complexity and recurrence. The level of information technology (IT) integration is considered as the moderator influencing the effectuation of contract framing.Design/methodology/approachThe authors conducted a questionnaire survey with 229 firms involved in imbalanced supply chains. Hierarchical regression analysis was used to test the hypotheses.FindingsThe authors found contractual complexity positively influenced performance and relational risk, while contractual recurrence negatively impacted performance and relational risk. This study further reveals the positive moderating effect of IT integration in influencing contractual complexity on relational risk and performance risk and the negative impact of IT integration in influencing contractual recurrence on relational risk and performance risk.Research limitations/implicationsOverall, this study posits the coordinating role of contracts in reducing the weaker party's risk perception in imbalanced supply chain relationships.Practical implicationsThe authors concluded by illustrating how to customize contracts based on the level of IT integration to maximize their role in reducing risk perception.Originality/valueThis study is embedded in imbalanced supply chain relationship, aiming to solve the problem of high-risk perception held by the weaker party, which is a salient threat to the sustainability of collaboration. Contract framing is proposed as an effective approach for mitigating risk perception, which should be carefully designed based on the level of IT integration of the relationship. The authors found that contractual complexity has a positive influence on performance and relational risk, but contractual recurrence has a negative impact on performance and relational risk. This study further reveals the moderating effect of IT integration on the effectuation of contractual framing.

Designing Collaborative R&D Contracts for Innovative Performance

Strategic management scholars have long emphasized the importance of innovation for a firm's competitive advantage. While firms have looked to interfirm collaborations as a common way to achieve innovative performance, R&D partnerships often fail to meet their expectations. The literature on interfirm collaborations has found that the design of the contract is a significant factor in explaining transaction outcomes. Thus, to understand why R&D partnerships fail or succeed it is important to examine the design of the contract. This paper seeks to develop a framework to better understand how elements of the design of the contract may impact the performance of R&D collaborations. Using the literature on innovation and R&D, the paper identifies management and interfirm relationship factors that can enhance or inhibit innovation that are likely to be affected by contract design. The paper then uses the literature on interfirm contracts to identify the control and coordination provisions of contracts that are highly pertinent to understanding interfirm behavior and outcomes, and augments it with recent research on contract framing to identify how certain provisions can play additional roles by psychologically impacting the exchange and ongoing relationship between firms. Finally, the paper integrates these two literatures streams and develops a framework and a set of propositions for understanding how contract design elements impact innovative performance through their effect on the management and interfirm relationship factors that enhance or inhibit innovation in R&D collaborations.

Ambiguous Sticks and Carrots: The Effect of Contract Framing and Payoff Ambiguity on Employee Effort

Research suggests that employees work harder under penalty contracts than under economically equivalent bonus contracts. We build on this literature by examining how the motivational advantage of penalty contracts depends on a common aspect of real-world contracts: payoff ambiguity. With payoff ambiguity, employees provide effort without knowing how much pay they will receive for a given level of performance. According to our theory, this ambiguity opens the door for employee optimism, which has contrasting effects under each contract frame. Results from an experiment support this theory, with an increase in ambiguity leading to less employee effort with penalty contracts (as employees optimistically expect small penalties) and to more effort with bonus contracts (as employees optimistically expect large bonuses). We also find that these effects are stronger for more dispositionally optimistic employees. Overall, our results suggest that bonus contracts may be more motivating and penalty contracts less motivating than previously thought.

Safety on site – Operating a test facility for a flight stage

The German Aerospace Center DLR is the German research institute with approximately 8000 employees in 20domestic locations. Among the aerospace research priorities of the German Aerospace Center DLR it includes also energy, safety and transport. DLR is institutionally supported by federal and state governments. Next funding sources arise in the context of third-party funds business (contract research and public contracts and subsidiaries). Main activities of the test center Lampoldshausen are testing of ARIANE's main and upper stage engines in the frame of ESA contracts. In the last years the test center of the DLR in Lampoldshausen has grown strongly over more than 30 %, so that the number of employees is actually of about 320. The testing department is mainly responsible for rocket combustion testing according to customer requirements. Two kinds of test facilities are operated, sea level test facilities and the altitude simulation test facilities. In addition to the DLR's growth also the activities of the industrial partner Ariane Group has been elevated so that actually nearly 600 employees are present on site Lampoldshausen.The management of the site in relation to safety and security requires special measures with special respect to the presence of more people inside the testing area in order to guarantee trouble-free and safe experimental operation onsite the DLR´s test plants. In order to meet with the future needs of continuing growth, the security and safety requirements have to be adopted. This report gives comprehensive outlook information about future possible scenarios of our coming tasks. Main driving force for future requests is the evolution of the rocket ARIANE. The new test position P5.2 has been erected to perform the qualification of the new upper stage with the VINCI engine. This project is very complex. In parallel to the construction work and acceptance testing actual running operation processes requires special procedures related to the overall safety of the test center. The site of Lampoldshausen with its test and supply facilities is subject to the restrictions of the German law Bundesimissionsschutzgesetz (derived from the European SEVESO-III directive) and its relevant ordinances, especially the Hazardous Incident Ordinance. Because of the complex framework effort which guarantees safety and security, Lampoldshausen has invested in people and processes in order to respect the restrictions of all relevant laws and ordinances as well as to guarantee the protection of people and the environment. Therefor a very special Master plan has been developed, with the goal to rearrange the complete testing area in order to be able to divide the area in certain sectors (testing range, technology and bureau) so that future testing enterprises will not affect almost free testing activities inside the site as it is in the present status. The paper provides comprehensive information related to the applied innovations including detailed background facts linked to the established safety and security standard applications.

Shielding the Workforce: Does Subordinate Contract Frame Induce Leniency in Superiors’ Target-Setting Decisions?

Management control systems affect employees at every level of the organizational hierarchy, so it is crucial to evaluate how controls at one hierarchical level spillover to another level. We examine how subordinates’ contract frame, an important management control, affects superiors’ target-setting decisions, another important control. Using an experiment, we predict and find that superiors set lower targets for subordinates under a penalty contract compared to a bonus contract, as superiors can project their negative perceptions of penalties onto subordinates and seek to reduce these perceived negative effects. Further, we predict and find that increasing the salience of subordinates’ contract choice to the superior mitigates the effect of subordinate contract frame on target-setting, and that these effects are stronger in low Dark Triad superiors compared to high Dark Triad superiors. Our findings add insights into the interrelationships of management controls at different hierarchical levels within the organization.

Hermeneutical Injustice, Contract Law, and Global Value Chains

Abstract Global value chains (GVCs) resist dominant contract framing, because presumptions about contract’s bilateral structure and party autonomy fail to capture the complex interconnections between private exchange relations. Contract law seems to obscure, rather than capture, the ways in which the relationships and experiences of various actors in GVCs are linked. This article argues that, in doing so, contract law contributes to systemic hermeneutical injustice. Systemic hermeneutical injustice captures how shared interpretative resources can render those in disadvantaged positions of social power unable to make intelligible that what is in their interest to render intelligible. The article’s primary aim is to show how this form of injustice bears on contract law and how it can function as an independent normative constraint on the institution of contract law.

TEORI PROSPEK DAN KONSERVATISMA LAPORAN KEUANGAN

This research was aimed to test the influence of incentive contract framing (framing effect) and class action (certainty effect) to financial reporting decision. Beside that, this research also investigated the interaction influence between framing effect and certainty effect. This research used laboratorium experiment design 2x2 between subjects. Experiment subjects were business students (MM and Maksi) Gadjah Mada University who were acted as management (CFO) with certain criteria. Research results showed that there was an influence of incentive contract framing and class action (litigation) to management’s (CFO) financial reporting decision. Subjects who were the insentive contract framed positively, tended to prepare more conservative financial statement. Vice versa, subjects who were the incentive contract framed negatively, tended to become risk taker, so that management (financial director) tended to prepare less conservative financial statement. But, the interaction result between incentive contract framing variable with class action (litigation) showed insignificant result. measurement problems are thought to affect these insignificant. Future studies are expected to give more attention to these problems.