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Almost Anonymous Implicit Contracting

  • Paul Castãneda Dower

    ()

    (New Economic School)

  • Andrei Bremzen

    ()

    (New Economic School)

Economists use relational or reputational concerns to explain the implicit enforcement of contracts. Both mechanisms require special assumptions concerning contracting parties' identities; in particular, these assumptions would not hold in one-period settings in which outcomes cannot affect reputation. In such a setting, this paper shows how a signaling mechanism can support the implicit enforcement of contracts that Pareto improve upon the null contract. Furthermore, this mechanism is independent of the discount factor and can outperform the relational contract in a range of cases. We find empirical support for our theory using contracts from nancing alliances in the biotech industry.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0187.

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Length: 52 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cfr:cefirw:w0187
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  1. Oliver Hart & John Moore, 2007. "Contracts as Reference Points," ESE Discussion Papers 170, Edinburgh School of Economics, University of Edinburgh.
  2. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
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  4. Akhmedov Akhmed & Suvorov Anton, 2014. "Discretionary Acquisition of Firm-Specific Human Capital under Non-verifiable Performance," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 34, February.
  5. Martimort, D. & Poudou, J.-C. & Sand-Zantman, W., 2006. "Contracting for an Innovation under Bilateral Asymmetric Information," Cahiers du LASER (LASER Working Papers) 2006.19, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
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  7. Sudipto Bhattacharya & Sergei Guriev, 2004. "Patents vs Trade Secrets: Knowledge Licensing and Spillover," Working Papers w0064, Center for Economic and Financial Research (CEFIR), revised Feb 2006.
  8. Bentley MacLeod, 2001. "Optimal Contracting with Subjective Evaluation," Theory workshop papers 357966000000000036, UCLA Department of Economics.
  9. Ernst Fehr & Oliver D. Hart & Christian Zehnder, 2008. "Contracts as Reference Points - Experimental Evidence," NBER Working Papers 14501, National Bureau of Economic Research, Inc.
  10. Scott E. Masten & Renáta Kosová, 2013. "Post-sale service and the limits of reputation," Industrial and Corporate Change, Oxford University Press, vol. 22(6), pages 1663-1698, December.
  11. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  13. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
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