Contracting Without a Plan: A Theory of Informal Justice

Sylvain Chassang and Christian Zehnder

No 1456, Working Papers from Princeton University, Department of Economics, Econometric Research Program.

Abstract: This paper develops a positive model of informal justice in which rewards and punishments are not determined by an ex ante optimal contract but instead express the ex post moral sentiments of the arbitrating party. In our model, a third party arbitrator mediates a one-shot relationship between two players, one of whom can exert an externality on the other. Importantly, formal contracts are not available and the arbitrator chooses transfers to maximize her ex post social preferences. We characterize the implicit incentive schemes induced by the arbitrator?s preferences, contrast them with ex ante optimal contracts, and identify novel qualitative predictions about the way externalities are internalized in informal settings.

Keywords: informal justice; informal contracts; incomplete contracts; arbitration; social preferences; third party punishment; law and economics; heuristics (search for similar items in EconPapers)
JEL-codes: C01 C70 D03 D63 (search for similar items in EconPapers)
Date: 2013-02
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://detc.princeton.edu/wp-content/uploads/2016/ ... Informal-Justice.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://detc.princeton.edu/wp-content/uploads/2016/11/wp049_2013-revised_Chassang_Zehnder_Contracting-Without-a-Plan-A-Theory-of-Informal-Justice.pdf [302 Found]--> https://detc.princeton.edu/wp-content/uploads/2016/11/wp049_2013-revised_Chassang_Zehnder_Contracting-Without-a-Plan-A-Theory-of-Informal-Justice.pdf [301 Moved Permanently]--> https://economics.princeton.edu/the-william-s-dietrich-ii-economic-theory-center/wp-content/uploads/2016/11/wp049_2013-revised_Chassang_Zehnder_Contracting-Without-a-Plan-A-Theory-of-Informal-Justice.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pri:metric:wp049_2013_chassang_zehnder_informaljustice.pdf

Access Statistics for this paper

More papers in Working Papers from Princeton University, Department of Economics, Econometric Research Program. Contact information at EDIRC.
Bibliographic data for series maintained by Bobray Bordelon ().