Behavioral constraints on the design of subgame-perfect implementation mechanisms

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 171

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Social Choice; Clubs; Committees; Associations ; Economics of Contract: Theory ; Design of Experiments: Laboratory, Group Behavior
• Subject: Implementation Theory ; Incomplete Contracts ; Experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fehr, Ernst ; Powell, Michael ; Wilkening, Tom
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2020

Further information

• DOI: doi:10.5167/uzh-98147
• Handle: http://hdl.handle.net/10419/227459
• Last update: 10.03.2025, 11:42 AM CET