Submission 88
Buyer vs. Seller Under Lump-Sum Contracts: Three Experiments on Role-Based Interpretation of Regulatory Language
panel.2-225 - Floor 1-02
Presented by: Alex Davies
Contract theory predicts that lump-sum payment structures create opposing incentives for buyers and sellers. We test whether these incentives generate systematic interpretive divergence when contract language is ambiguous. Using a naturally occurring ambiguity in Estonian winter road maintenance regulations, we conducted three preregistered experiments (N=600 each) in which participants adopted contractor (seller) or client (buyer) roles and interpreted regulatory language governing snow clearance timing.
Across all experiments, contractors reliably adopted lenient interpretations favoring lower compliance costs. However, clients did not adopt correspondingly strict interpretations—instead patterning with control participants. A fairness pretest suggested that clients perceived strict enforcement as unfair when it would push contractors into losses. Only when we reframed contractor losses as reflecting inefficiency rather than unfair demands (via a client expertise manipulation) did clients interpret more strictly than controls. A perspective-check revealed that control participants spontaneously adopted the viewpoint of someone who must comply with the ordinance—effectively functioning as contractors without financial incentive.
These findings extend incomplete contracts theory to semantic interpretation and document a new domain where fairness constrains profit-seeking behavior.