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Title:Indenture as a self-enforced contract device: an experimental test PDF Logo
Authors:Kritikos, Alexander S.
Tan, Jonathan H. W.
Issue Date:2009
Series/Report no.:Discussion papers // German Institute for Economic Research 851
Abstract: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.
Subjects:Cooperation
experiment
contracts
indenture
reciprocity
JEL:C91
D64
J41
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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