Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268433 
Year of Publication: 
2021
Citation: 
[Journal:] American Economic Review [ISSN:] 1944-7981 [Volume:] 111 [Issue:] 4 [Publisher:] American Economic Association [Place:] Pittsburgh, PA [Year:] 2021 [Pages:] 1055-1091
Publisher: 
American Economic Association, Pittsburgh, PA
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. (JEL C92, D44, D82, D86, D91)
JEL: 
C92
D44
D82
D86
D91
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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