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Promises and conventions – An approach to pre-play agreements

  • Miettinen, Topi

I analyze how informal agreements can be sustained by moral emotions with regard to a large class of two-player games. Specifically, I assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other. A central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes. I complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement. I show that while the optimal agreement in a game with strategic substitutes must compromise on surplus-maximization and efficiency, the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 80 (2013)
Issue (Month): C ()
Pages: 68-84

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Handle: RePEc:eee:gamebe:v:80:y:2013:i:c:p:68-84
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