Indenture as a Self-Enforced Contract Device: An Experimental Test
AbstractWe 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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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 75 (2009)
Issue (Month): 3 (January)
Other versions of this item:
- Alexander S. Kritikos & Jonathan H. W. Tan, 2009. "Indenture as a Self-Enforced Contract Device: An Experimental Test," Discussion Papers of DIW Berlin 851, DIW Berlin, German Institute for Economic Research.
- Alexander S. Kritikos & Jonathan H. W. Tan, 2008. "Indenture as a Self-Enforced Contract Device: An Experimental Test," Working Papers 002, Hanseatic University, Germany, Department of Economics.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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- Charness, Gary & Kuhn, Peter J., 2010.
"Lab Labor: What Can Labor Economists Learn from the Lab?,"
IZA Discussion Papers
4941, Institute for the Study of Labor (IZA).
- Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
- Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
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