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Promises, Promises, ..

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  • Juan D. Carrillo
  • Mathias Dewatripont

Abstract

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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  • Juan D. Carrillo & Mathias Dewatripont, 2005. "Promises, Promises, ..," Levine's Bibliography 172782000000000058, UCLA Department of Economics.
  • Handle: RePEc:cla:levrem:172782000000000058
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    Cited by:

    1. Schumacher, Heiner, 2016. "Insurance, self-control, and contract flexibility," European Economic Review, Elsevier, vol. 83(C), pages 220-232.
    2. Koch, Alexander K. & Nafziger, Julia, 2016. "Goals and bracketing under mental accounting," Journal of Economic Theory, Elsevier, vol. 162(C), pages 305-351.
    3. Koch, Alexander K. & Nafziger, Julia & Suvorov, Anton & van de Ven, Jeroen, 2014. "Self-rewards and personal motivation," European Economic Review, Elsevier, vol. 68(C), pages 151-167.
    4. Hsiaw, Alice, 2013. "Goal-setting and self-control," Journal of Economic Theory, Elsevier, vol. 148(2), pages 601-626.
    5. Himmler, Oliver & Jaeckle, Robert & Weinschenk, Philipp, 2017. "Soft Commitments, Reminders and Academic Performance," MPRA Paper 76832, University Library of Munich, Germany.
    6. repec:eee:joepsy:v:61:y:2017:i:c:p:39-54 is not listed on IDEAS
    7. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
    8. Edvardsson Björnberg, Karin, 2013. "Rational climate mitigation goals," Energy Policy, Elsevier, vol. 56(C), pages 285-292.

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