The Sorry Clause (Revision of TILEC DP 2016-004)

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Abstract

This paper shows the existence of a sorry equilibrium in a game of imperfect public monitoring. In equilibrium, a self-imposed costly apology tendered after an accidental defection, makes private information public, allowing for continued cooperation. This cost cannot be too high or too low. Efficiency of the sorry equilibrium is evaluated and its welfare outcomes compared to other informal governance mechanisms and the formal legal system. With the possibility of accidental defections, it is shown that informal mechanisms have limitations, while formal legal systems can generate perverse incentives. The analysis demonstrates that apologies serve as a useful economic governance institution.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages42
Volume2017-002
Publication statusPublished - 25 Jan 2017

Publication series

NameTILEC Discussion Paper
Volume2017-002

Keywords

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

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