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Promises, Threats and Fairness

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Author Info
Tore Ellingsen
Magnus Johannesson

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Abstract

We present experimental evidence that promises and threats mitigate the hold-up problem. While investors rely as much on their own threats as on their trading partner's promises, the latter are more credible. Building on recent work in psychology and behavioural economics, we then present a simple model within which agents are concerned about both fairness and consistency. The model can account for several of our experimental findings. Its most striking implication is that fairmindedness strengthens the credibility of promises to behave fairly, but weakens the credibility of threats to punish unfair behaviour. Copyright 2004 Royal Economic Society.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 495 (04)
Pages: 397-420
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Handle: RePEc:ecj:econjl:v:114:y:2004:i:495:p:397-420

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  1. Sebastian Kranz, 2006. "Moral Norms in a Partly Compliant Society," Levine's Bibliography 321307000000000092, UCLA Department of Economics. [Downloadable!]
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  2. Stefano Demichelis & Jörgen Weibull, 2009. "Language, meaning and games A model of communication, coordination and evolution," Working Papers hal-00354224_v1, HAL. [Downloadable!]
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  3. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics. [Downloadable!]
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  4. Ernst Fehr & Susanne Kremhelmer & Klaus M. Schmidt, 2004. "Fairness and the Optimal Allocation of Ownership Rights," Discussion Papers 11, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  5. Demichelis, Stefano & Weibull, Jörgen, 2006. "Efficiency, communication and honesty," Working Paper Series in Economics and Finance 645, Stockholm School of Economics, revised 28 Nov 2006. [Downloadable!]
  6. Wengström, Erik, 2007. "Setting the Anchor: Price Competition, Level-n Theory and Communication," Working Papers 2007:6, Lund University, Department of Economics. [Downloadable!]
  7. Michele Belot, & V. Bhaskar & Jeroen van de Ven, 2006. "A Public Dilemma: Cooperation with Large Stakes and a Large Audience," Economics Discussion Papers 617, University of Essex, Department of Economics. [Downloadable!]
  8. Miettinen, Topi, 2008. "Contracts and Promises - An Approach to Pre-play Agreements," Working Paper Series in Economics and Finance 707, Stockholm School of Economics. [Downloadable!]
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  9. Matthew Ellman & Paul Pezanis-Christou, 2007. "Organisational structure, communication and group ethics," UFAE and IAE Working Papers 682.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  10. Rupert Sausgruber & Jean-Robert Tyran, 2008. "Tax Salience, Voting, and Deliberation," Discussion Papers 08-21, University of Copenhagen. Department of Economics. [Downloadable!]
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  11. Randolph Sloof, 2003. "Price-setting Power versus Private Information," Tinbergen Institute Discussion Papers 03-099/1, Tinbergen Institute. [Downloadable!]
  12. Philipp C. Wichardt & Daniel Schunk & Patrick W. Schmitz, 2008. "Participation costs for responders can reduce rejection rates in ultimatum bargaining," IEW - Working Papers iewwp398, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  13. Topi Miettinen, 2006. "Promises and Conventions - An Approach to Pre-play Agreements," Papers on Strategic Interaction 2006-29, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  14. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics. [Downloadable!]
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  15. Luca Corazzini & Sebastian Kube & Michel André Maréchal & Antonio Nicoló, 2009. "Elections and Deceptions: Theory and Experimental Evidence," IEW - Working Papers iewwp421, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  16. Erik Wengström, 2008. "Price competition, level-k theory and communication," Economics Bulletin, Economics Bulletin, vol. 3(66), pages 1-15. [Downloadable!]
  17. Andersson, Ola & Wengström, Erik, 2004. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Working Papers 2004:14, Lund University, Department of Economics, revised 13 Sep 2004. [Downloadable!]
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  18. López-Pérez, Raúl, 2008. "The Power of Words: Why Communication fosters Cooperation and Efficiency," Working Papers in Economic Theory 2009/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History). [Downloadable!]
  19. Gary Charness & Martin Dufwenberg, 2008. "Broken Promises: An Experiment," University of California at Santa Barbara, Economics Working Paper Series 10-08, Department of Economics, UC Santa Barbara. [Downloadable!]
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