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Promises and Conventions - An Approach to Pre-play Agreements

  • Topi Miettinen

    ()

Experiments suggest that communication increases the contribution to public goods (Ledyard, 1995). There is also evidence that, when contemplating a lie, people trade off their private benefit from the lie with the harm it inflicts on others (Gneezy, 2005). We develop a model of bilateral pre-play agreements that assumes the latter and implies the former. A preference for not lying provides a partial commitment device that enables informal agreements. We establish some general properties of the set of possible agreements in normal form games and characterize the smallest and largest such set. In symmetric games, pre-play agreements crucially depend on whether actions are strategic complements or substitutes. With strategic substitutes, commitment power tends to decrease in efficiency whereas the opposite may be true with strategic complements.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-29.

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Length: 33 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:esi:discus:2006-29
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