Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/227459 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 171
Version Description: 
Revised version, November 2020
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms - which are based on off-equilibrium arbitration clauses that impose large fines for lying and the inappropriate use of arbitration - have severe behavioral constraints because the fines induce retaliation against legitimate uses of arbitration. Incorporating reciprocity preferences into the theory explains the observed behavioral patterns and helps us develop a new mechanism that is more robust and achieves high rates of truth-telling and efficiency. Our results highlight the importance of tailoring implementation mechanisms to the underlying behavioral environment.
Subjects: 
Implementation Theory
Incomplete Contracts
Experiments
JEL: 
D23
D71
D86
C92
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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