Promises, Reliance, and Psychological Lock-In
Rebecca Stone and
The Journal of Legal Studies, 2020, vol. 49, issue 1, 33 - 72
We obtain experimental evidence that suggests that promisors are more likely to keep promises the more they were relied on by a promisee; that this effect is anticipated by promisees, who accordingly strategically overinvest to lock promisors into keeping their promises (psychological lock-in); and therefore that legal enforcement can reduce overinvestment as promisees do not need to make use of the extralegal mechanism of psychological lock-in when the legal regime induces promisors to perform instead. These results contrast with the central prediction of the holdup literature that underinvestment results in the absence of legal enforcement.
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlstud:doi:10.1086/707562
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