We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms - which are based on off-equilibrium arbitration clauses that impose large fines for lying and the inappropriate use of arbitration -...

Under weak contract enforcement the trading parties’ trust, defined as their belief in other’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about other’s trustworthiness appear less important, suggesting that...

Trust affects almost all human relationships - in families, organizations, markets and politics. However, identifying the conditions under which trust, defined as people's beliefs in the trustworthiness of others, has a causal effect on the efficiency of human interactions has proven to be...