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Title: The Social Equilibrium of Relational Arrangements
The enforcement of relational contracts is especially challenging in anonymous environments when there are opportunities to start new partnerships after a transgression. Building on Ghosh and Ray (1996), we study norms within bilateral partnerships that exhibit gradually increasing cooperation, thus serving to deter deviations. However, socially beneficial gradualism may be undermined by partners renegotiating to greater cooperation from the outset. We show that incomplete information regarding partner patience ameliorates this tension even as it adds to the anonymity of the environment. Specifically, gradualism is now bilaterally desirable, and has the social by-product of maintaining individual cooperation. We also study a one-sided version of this problem in which only one of the partners exhibits moral hazard, and offer tentative thoughts on generalizing the theory to environments with richer gradations of incomplete information  more » « less
Award ID(s):
1851758
PAR ID:
10503306
Author(s) / Creator(s):
;
Publisher / Repository:
Mohr Siebeck
Date Published:
Journal Name:
Journal of Institutional and Theoretical Economics
Volume:
179
Issue:
3-4
ISSN:
0932-4569
Page Range / eLocation ID:
579-615
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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