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Promises and conventions – An approach to pre-play agreements

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  • Miettinen, Topi

Abstract

I analyze how informal agreements can be sustained by moral emotions with regard to a large class of two-player games. Specifically, I assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other. A central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes. I complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement. I show that while the optimal agreement in a game with strategic substitutes must compromise on surplus-maximization and efficiency, the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 80 (2013)
Issue (Month): C ()
Pages: 68-84

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Handle: RePEc:eee:gamebe:v:80:y:2013:i:c:p:68-84

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Web page: http://www.elsevier.com/locate/inca/622836

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Cited by:
  1. 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.
  2. Stefano Demichelis & Jorgen W. Weibull, 2008. "Language, Meaning, and Games: A Model of Communication, Coordination, and Evolution," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1292-1311, September.
  3. Miettinen, Topi, 2009. "Moral Hazard and Clear Conscience," SITE Working Paper Series 4, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  4. Wengström, Erik, 2007. "Setting the Anchor: Price Competition, Level-n Theory and Communication," Working Papers, Lund University, Department of Economics 2007:6, Lund University, Department of Economics.
  5. Allen Hicken & Stephen G. Leider & Nico Ravanilla & Dean Yang, 2014. "Temptation in Vote-Selling: Evidence from a Field Experiment in the Philippines," CESifo Working Paper Series 4828, CESifo Group Munich.
  6. Nathan Berg & Donald Lien, 2009. "Sexual orientation and self-reported lying," Review of Economics of the Household, Springer, Springer, vol. 7(1), pages 83-104, March.

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