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Promises, Promises, ..

  • Juan D. Carrillo
  • Mathias Dewatripont

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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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 172782000000000058.

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Date of creation: 05 Apr 2005
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Handle: RePEc:cla:levrem:172782000000000058
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  1. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives For Procrastinators," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 769-816, August.
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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.
  10. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
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  12. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  13. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  14. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 529-44, July.
  15. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 475-494, October.
  16. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(3), pages 272-292, March.
  17. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  18. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
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