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Are non-binding contracts really not worth the paper?
- Source :
- Managerial & Decision Economics; Jan/Feb2006, Vol. 27 Issue 1, p21-40, 20p, 2 Diagrams, 7 Charts, 4 Graphs
- Publication Year :
- 2006
-
Abstract
- We experimentally investigate behavior in sequential one-shot transactions which are governed by non-binding contracts. In a second, incomplete information treatment, contracts are binding for some players. While according to traditional game-theoretical analysis no trade is expected in the first treatment, full trade should result in the latter. However, we find that trade is even higher in the non-binding contract treatment. On the one hand, non-binding contracts—although they are cheap talk—do guide behavior, especially at the beginning of a business relationship, while reciprocal reactions prevail later on. On the other hand, in the treatment with binding contracts cooperative behavior appears to be crowded out. Copyright © 2005 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 01436570
- Volume :
- 27
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Managerial & Decision Economics
- Publication Type :
- Academic Journal
- Accession number :
- 19301794
- Full Text :
- https://doi.org/10.1002/mde.1243