Credible Promises and Hostage Mechanisms Can Support a Continuous Stream

question 4

Multiple Choice

Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when

• A) the promisor is better off fulfilling than ignoring his promise
• B) neither party has a prior dominant strategy
• C) the hostage can be revoked for just causes
• D) the hostage is more valuable than any given exchange
• E) the hostage is difficult to replace

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Definitions:

Internal Rate

Also known as the internal rate of return (IRR), it is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.