Indenture as a Self-Enforced Contract Device: An Experimental Test
Alexander Kritikos () and
Jonathan Tan ()
No 851, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
We experimentally test the efficacy of indenture as a self-enforced contract device. In an indenture game, the principal signals the intention of payment-on-delivery, by tearing a banknote and giving the agent half of it as "prepayment"; the agent receives the completing half after delivering the service. By forward induction, cooperation is incentive-compatibly self-enforcing. The indenture performs very well, inducing a significantly higher level of cooperation than that in a three-stage centipede game, which we use to benchmark the natural rate of cooperation. The difference between cooperation rates in both games increases over time.
Keywords: Cooperation; experiment; contracts; indenture; reciprocity (search for similar items in EconPapers)
JEL-codes: C91 D64 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-exp
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Journal Article: Indenture as a Self-Enforced Contract Device: An Experimental Test (2009)
Working Paper: Indenture as a Self-Enforced Contract Device: An Experimental Test (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp851
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