Social preferences and formal contract enforcement are two mechanisms that facilitate performance of an agreement. The standard argument is that formal contracting substitutes when social preferences are lacking. We, alternatively, explore the hypothesis that social preferences and contract...

On the doctrinal surface, there is a deep divide between common and continental law when it comes to the origin of contractual obligations. Under continental law, in principle a unilateral promise suffices. Common law by contrast requires consideration. When it comes to deciding cases, the...

Promising serves as an important commitment mechanism by operating on a potential cheater’s internal value system. We present experimental evidence on what motivates people to keep their promises. First, they feel that they are duty-bound to keep their promises regardless of whether promisees...

We develop a theoretical model to identify and compare partial and equilibrium effects of uncertainty and the magnitude of fines on punishment and deterrence. Partial effects are effects on potential violators' and punishers' decisions when the other side's behavior is exogenously given....

We use economic experiments to examine the nature of relational trading under a menu of incomplete contracts ranging from the repeat purchase mechanism of Klein and Leffler (1981) to highly incomplete contracts that are completely unenforceable by third-parties. Our results suggest that, with...

We study experimentally a two-stage compensation mechanism for promoting cooperation in prisoner's dilemma games. In stage 1, players simultaneously choose binding non-negative amounts to pay their counterparts for cooperating in a given prisoner's dilemma game, and then play the prisoner's...

This paper creates a game theoretic model to determine how pendulum arbitration or baseball arbitration impacts the incentives of litigants. Pendulum arbitration is when both parties submit competing proposals and the arbitrator chooses only one of the bids, in its entirety, to be binding on...

In this paper, a setting of bilateral selfish reliance investments and post contractual two-sided asymmetric information is explored. Since the pioneering work of Rogerson (1992) and Hermalin-Katz (1993), it is by now well known that the comprehensive contracts can implement the first best even...

Since Schelling's seminal work on bargaining, it has been a common intuition that two parties cannot form a contract with positive expectation damages (let alone one that is renegotiation proof), if outside of the contract each would have no interests in what the other would or could do. After...