Alexander S. Kritikos () (DJW-Berlin 10108 Berlin, Germany 8 GFA Berlin, Kufsteinroster, 10808 Berlin, Germany) Jonathan H. W. Tan () (Nottingham University Business School, the University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, United Kingdom)
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We experimentally test the efficacy of indenture as a self-enforced contract device. In an indenture game, the principal signals the intention of payment on delivery by tearing a banknote in half and giving the agent one half of it as ‘‘prepayment’’; the agent receives the completing half after delivering the service. By forward induction, cooperation is incentive-compatibly self-enforcing. The indenture performs very well, inducing a significantly higher level of cooperation than that in a three-stage centipede game, which we use to benchmark the natural rate of cooperation. The difference between cooperation rates in both games increases over time.
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Volume (Year): 75 (2009) Issue (Month): 3 (January) Pages: 857–872 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior D64 - Microeconomics - - Welfare Economics - - - Altruism J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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