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Contracts and Promises - An Approach to Pre-play Agreements

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Author Info
Topi Miettinen () (SITE, Stockholm School of Economics, and Max Planck Institute for Ecopnomics, Jena, Germany)

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Abstract

In line with the widely applied principle of just deserts, we assume that the severity of the penalty on a contract offender increases in the harm on the other. When this principle holds, the influence of the efficiency of the agreement on the incentives to abide by it crucially depends on whether actions are strategic complements or substitutes. With strategic substitutes, there is a conflict between Pareto-efficiency and the incentives to abide. The opposite tends to be true when actions are strategic complements. The results are interpreted in the context of legal contracts and in that of informal mutual promises.

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Publisher Info
Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek in its series Jena Economic Research Papers in Economics with number 2008-088.

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Date of creation: 20 Nov 2008
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Handle: RePEc:jrp:jrpwrp:2008-088

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Related research
Keywords: partnerships; contracts; pre-play communication; legal enforcement; social norms; guilt;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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