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Contracts and Promises - An Approach to Pre-play Agreements

  • Topi Miettinen


    (SITE, Stockholm School of Economics, and Max Planck Institute for Ecopnomics, Jena, Germany)

In line with the widely applied principle of just deserts, we assume that the severity of the penalty on a contract offender increases in the harm on the other. When this principle holds, the influence of the efficiency of the agreement on the incentives to abide by it crucially depends on whether actions are strategic complements or substitutes. With strategic substitutes, there is a conflict between Pareto-efficiency and the incentives to abide. The opposite tends to be true when actions are strategic complements. The results are interpreted in the context of legal contracts and in that of informal mutual promises.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-088.

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Date of creation: 20 Nov 2008
Date of revision:
Handle: RePEc:jrp:jrpwrp:2008-088
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