Are non-binding contracts really not worth the paper?
We experimentally investigate behavior in sequential one-shot transactions which are governed by non-binding contracts. In a second, incomplete information treatment, contracts are binding for some players. While according to traditional game-theoretical analysis no trade is expected in the first treatment, full trade should result in the latter. However, we find that trade is even higher in the non-binding contract treatment. On the one hand, non-binding contracts-although they are cheap talk-do guide behavior, especially at the beginning of a business relationship, while reciprocal reactions prevail later on. On the other hand, in the treatment with binding contracts cooperative behavior appears to be crowded out. Copyright © 2005 John Wiley & Sons, Ltd.
Volume (Year): 27 (2006)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Abbink, Klaus & Irlenbusch, Bernd & Renner, Elke, 2000.
"The moonlighting game: An experimental study on reciprocity and retribution,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 42(2), pages 265-277, June.
- Abbink, Klaus & Bernd Irlenbusch & Elke Renner, 1997. "The Moonlighting Game - An Experimental Study on Reciprocity and Retribution," Discussion Paper Serie B 415, University of Bonn, Germany.
- Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, vol. 60(5), pages 1151-1169, September.
- Armin Falk & Urs Fischbacher, 2001.
"A Theory of Reciprocity,"
CESifo Working Paper Series
457, CESifo Group Munich.
- Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-670, October.
- Dirk Sliwka, 2003.
"On the Hidden Costs of Incentive Schemes,"
Bonn Econ Discussion Papers
bgse12_2003, University of Bonn, Germany.
- Jeannette Brosig & Joachim Weimann & Axel Ockenfels, 2003.
"The Effect of Communication Media on Cooperation,"
German Economic Review,
Verein für Socialpolitik, vol. 4(2), pages 217-241, 05.
- MacLeod, W.B. & Malcomson, J.M., 1997.
"Motivation and markets,"
Discussion Paper Series In Economics And Econometrics
9720, Economics Division, School of Social Sciences, University of Southampton.
- McKelvey, Richard D. & Palfrey, Thomas., 1991.
"An Experimental Study of the Centipede Game,"
732, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
- Kreps, David M & Wilson, Robert, 1982.
Econometric Society, vol. 50(4), pages 863-894, July.
- Gary Charness, 1996. "Attribution and reciprocity in a simulated labor market: An experimental investigation," Economics Working Papers 283, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 1997.
- Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997.
"Reciprocity as a contract enforcement device: experimental evidence,"
ULB Institutional Repository
2013/5911, ULB -- Universite Libre de Bruxelles.
- Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
- Iris Bohnet & Bruno S. Frey & Steffen Huck, "undated". "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
- Irlenbusch, Bernd, 2004. "Relying on a man's word?: An experimental study on non-binding contracts," International Review of Law and Economics, Elsevier, vol. 24(3), pages 299-332, September.
- Uri Gneezy & Aldo Rustichini, 2000.
"A fine is a price,"
Natural Field Experiments
00258, The Field Experiments Website.
- Ernst Fehr & Urs Fischbacher, 2002. "Why Social Preferences Matter -- The Impact of Non-Selfish Motives on Competition, Cooperation and Incentives," Economic Journal, Royal Economic Society, vol. 112(478), pages 1-33, March.
- Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
- Palfrey, Thomas R. & Rosenthal, Howard., "undated".
"Testing for Effects of Cheap Talk in a Public Goods Game with Private Information,"
692, California Institute of Technology, Division of the Humanities and Social Sciences.
- Palfrey, Thomas R. & Rosenthal, Howard, 1991. "Testing for effects of cheap talk in a public goods game with private information," Games and Economic Behavior, Elsevier, vol. 3(2), pages 183-220, May.
- COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In The Battle Of The Sexes Game," Carleton Industrial Organization Research Unit (CIORU) 89-03, Carleton University, Department of Economics.
- Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:27:y:2006:i:1:p:21-40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.