The Sorry Clause

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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
PublisherTILEC
Number of pages44
Volume2016-004
Publication statusPublished - 26 Jan 2016

Publication series

NameTILEC Discussion Paper
Volume2016-004

Keywords

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

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  • Cite this

    Srivastava, V. (2016). The Sorry Clause. (TILEC Discussion Paper; Vol. 2016-004). TILEC.