Indenture as a Self‐Enforced Contract Device: An Experimental Test

C-Tier
Journal: Southern Economic Journal
Year: 2009
Volume: 75
Issue: 3
Pages: 857-872

Score contribution per author:

0.503 = (α=2.01 / 2 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

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 in half and giving the agent one 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.

Technical Details

RePEc Handle
repec:wly:soecon:v:75:y:2009:i:3:p:857-872
Journal Field
General
Author Count
2
Added to Database
2026-01-25