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Promises and conventions – An approach to pre-play agreements

Topi Miettinen ()

Games and Economic Behavior, 2013, vol. 80, issue C, 68-84

Abstract: I analyze how informal agreements can be sustained by moral emotions with regard to a large class of two-player games. Specifically, I assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other. A central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes. I complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement. I show that while the optimal agreement in a game with strategic substitutes must compromise on surplus-maximization and efficiency, the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric.

JEL-codes: C72 C78 D03 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Promises and Conventions - An Approach to Pre-play Agreements (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:80:y:2013:i:c:p:68-84

DOI: 10.1016/j.geb.2013.03.002

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