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 and giving the agent 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 InfoPaper provided by Hanseatic University, Germany, Department of Economics in its series Working Papers with number 002.
Length: 23 pages
Date of creation: Feb 2008
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Other versions of this item:
- Alexander S. Kritikos & Jonathan H. W. Tan, 2009. "Indenture as a Self-Enforced Contract Device: An Experimental Test," Southern Economic Journal, Southern Economic Association, vol. 75(3), pages 857â872, January.
- 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.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-CTA-2008-07-20 (Contract Theory & Applications)
- NEP-EXP-2008-07-20 (Experimental Economics)
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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).
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