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Promises, promises, ..

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  • Mathias Dewatripont
  • Juan Carrillo

Abstract

We consider a hyperbolic discounting individual who has the ability to make promises which are costly to break. We first identify conditions under which promises made are kept, and conditions under which they are (partially) broken. Second, we provide microeconomic foundations for the effectiveness of contractual promises. Specifically, we show how the cost of breaking promises can be reinterpreted in terms of either a reputation loss in the presence of incomplete information or a financial loss under monitoring and explicit contracting. The results imply that strategic interactions between hyperbolic discounting individuals may serve as a commitment mechanism against intrapersonal conflicts. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9639.

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Date of creation: 2008
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Publication status: Published in: The Economic Journal (2008) v.118 n° 531,p.1453-1473
Handle: RePEc:ulb:ulbeco:2013/9639

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  1. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 529-44, July.
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  9. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
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  13. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, Elsevier, vol. 8(3), pages 201-207.
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  15. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  16. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives For Procrastinators," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 769-816, August.
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Cited by:
  1. Hsiaw, Alice, 2013. "Goal-setting and self-control," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(2), pages 601-626.
  2. Edvardsson Björnberg, Karin, 2013. "Rational climate mitigation goals," Energy Policy, Elsevier, Elsevier, vol. 56(C), pages 285-292.
  3. Alexander K. Koch, & Julia Nafziger & Anton Suvorov & Jeroen van de Ven, 2012. "Self-Rewards and Personal Motivation," Economics Working Papers, School of Economics and Management, University of Aarhus 2012-14, School of Economics and Management, University of Aarhus.
  4. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).

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