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|Title:||Indenture as a self-enforced contract device: an experimental test |
|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.|
|Document Type:||Working Paper|
|Appears in Collections:||DIW-Diskussionspapiere|
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