Promises and Endogenous Reneging Costs

59 Pages Posted: 27 Apr 2017 Last revised: 29 Feb 2020

See all articles by Yuval Heller

Yuval Heller

Bar Ilan University

David Sturrock

Institute for Fiscal Studies (IFS); University College London - University College London, Department of Economics, Students

Date Written: February 27, 20

Abstract

We present a novel theoretical mechanism that explains how nonenforceable communication about future actions has the capacity to improve efficiency. We explore a two-player partnership game where each player, before choosing a level of effort to exert on a joint project, makes a cheap talk promise to his partner about his own future effort. We allow agents to incur a psychological cost of reneging on their promises. We demonstrate a strong tendency for evolutionary processes to select agents who incur intermediate costs of reneging, and show that these intermediate costs induce second-best optimal outcomes.

Keywords: Promises, Lying Costs, Joint Projects, Input Games, Partnerships

JEL Classification: C73, D03, D83

Suggested Citation

Heller, Yuval and Sturrock, David, Promises and Endogenous Reneging Costs (February 27, 20). Journal of Economic Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2958759 or http://dx.doi.org/10.2139/ssrn.2958759

Yuval Heller (Contact Author)

Bar Ilan University ( email )

Dept. of Economics, Building 504
Bar Ilan University
Ramat Gan, 5290002
Israel
+972 5252 82182 (Phone)

HOME PAGE: http://https://sites.google.com/site/yuval26/

David Sturrock

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

University College London - University College London, Department of Economics, Students ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

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