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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Behavioral constraints on the design of subgame-perfect implementation mechanisms |
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| Institution | University of Zurich |
| Series Name | Working paper series / Department of Economics |
| Number | 171 |
| ISSN | 1664-7041 |
| Number of Pages | 87 |
| Date | 2020 |
| Abstract Text | 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. |
| Official URL | https://www.econ.uzh.ch/en/research/workingpapers.html?paper-id=850 |
| Other Identification Number | merlin-id:9894 |
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| Keywords | Implementation theory, incomplete contracts, experiments, Verhaltensökonomie, experimentelle Spieltheorie, experimentelle Wirtschaftsforschung, asymmetrische Information |
| Additional Information | Revised version ; Former title: Handing out guns at a knife fight: behavioral limitations of subgame-perfect implementation |