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Contracts with Framing, American Economic Journal: Microeconomics

Abstract

We study a model of contracts in which a profit-maximizing seller uses framing to influence buyers' purchasing behavior. Framing temporarily affects how buyers evaluate different products, and buyers can renege on their purchases after the framing effect wears off. We characterize the optimal contracts with framing and their welfare properties in several settings. Framing that is not too strong reduces total welfare in regulated markets with homogenous buyers, but increases total welfare in markets with heterogenous buyers when the proportion of buyers with low willingness to pay is small.

Type

Article

Author(s)

Yuval Salant, Ron Siegel

Date Published

2018

Citations

Salant, Yuval, and Ron Siegel. 2018. Contracts with Framing. American Economic Journal: Microeconomics.

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