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Contracts and Promises - An Approach to Pre-play Agreements

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  • Topi Miettinen

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

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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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers 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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Keywords: partnerships; contracts; pre-play communication; legal enforcement; social norms; guilt;

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Cited by:
  1. Serra Garcia, M. & Damme, E.E.C. van & Potters, J.J.M., 2011. "Lying About What you Know or About What you do? (replaces TILEC DP 2010-016)," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2011-055, Tilburg University, Tilburg Law and Economic Center.
  2. Serra Garcia, M. & Damme, E.E.C. van & Potters, J.J.M., 2010. "Which Words Bond? An Experiment on Signaling in a Public Good Game (replaced by CentER DP 2011-139)," Discussion Paper, Tilburg University, Center for Economic Research 2010-33, Tilburg University, Center for Economic Research.
  3. Cary Deck & Maroš Servátka & Steven Tucker, 2013. "An examination of the effect of messages on cooperation under double-blind and single-blind payoff procedures," Experimental Economics, Springer, Springer, vol. 16(4), pages 597-607, December.
  4. Angelova, Vera & Regner, Tobias, 2013. "Do voluntary payments to advisors improve the quality of financial advice? An experimental deception game," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 93(C), pages 205-218.
  5. Martin Dufwenberg & Maroš Servátka & Radovan Vadovič, 2012. "ABC on Deals," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 12/14, University of Canterbury, Department of Economics and Finance.
  6. Serra Garcia, M. & Damme, E.E.C. van & Potters, J.J.M., 2011. "Lying About What you Know or About What you Do? (replaces CentER DP 2010-033)," Discussion Paper, Tilburg University, Center for Economic Research 2011-139, Tilburg University, Center for Economic Research.
  7. Cary Deck & Maroš Servátka & Steven Tucker, 2011. "Do People Keep Socially Unverifiable Promises?," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 11/39, University of Canterbury, Department of Economics and Finance.
  8. Steffen Huck & Andrew J. Seltzer & Brian Wallace, 2011. "Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model," American Economic Review, American Economic Association, American Economic Association, vol. 101(2), pages 819-43, April.
  9. Reuben, Ernesto & van Winden, Frans, 2010. "Fairness perceptions and prosocial emotions in the power to take," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(6), pages 908-922, December.

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