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Almost Anonymous Implicit Contracting

Author

Listed:
  • Paul Castãneda Dower

    (New Economic School)

  • Andrei Bremzen

    (New Economic School)

Abstract

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.

Suggested Citation

  • Paul Castãneda Dower & Andrei Bremzen, 2012. "Almost Anonymous Implicit Contracting," Working Papers w0187, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0187
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    File URL: http://www.cefir.ru/papers/WP187.pdf
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • D29 - Microeconomics - - Production and Organizations - - - Other
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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