Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27374
Authors: 
Kritikos, Alexander S.
Tan, Jonathan H. W.
Year of Publication: 
2009
Series/Report no.: 
DIW Discussion Papers 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

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