The Sorry Clause

Vatsalya Srivastava

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Abstract

When players face uncertainty in choosing actions, undesirable outcomes cannot be avoided. Accidental defections caused by uncertainty, that does not depend on the level of care, require a mechanism to reconcile the players. This paper shows the existence of a perfect sorry equilibrium in a game of imperfect public monitoring. In the sorry equilibrium, costly apology is self-imposed in case of accidental defections, making private information public and allowing cooperation to resume. Cost of the apology required to sustain this equilibrium is calculated, the efficiency characteristics of the equilibrium evaluated and outcomes compared to those from other bilateral social governance mechanisms and formal legal systems. It is argued that with the possibility of accidental defections, other social mechanisms have limitations, while formal legal systems can generate perverse incentives. Therefore, apologies can serve as a useful
economic governance institution.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages44
Volume2016-008
Publication statusPublished - 26 Jan 2016

Publication series

NameCentER Discussion Paper
Volume2016-008

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Keywords

  • apology
  • sorry
  • imperfect public monitoring
  • uncertainty
  • social norms
  • economics governance
  • Legal institutions
  • incentives

Cite this

Srivastava, V. (2016). The Sorry Clause. (CentER Discussion Paper; Vol. 2016-008). Tilburg: CentER, Center for Economic Research.