The mere threat of dispute costs can deter cheating without real costs being paid.

Evidence

However, once these costs are low enough that the threat to file claims with the Law Merchant is credible, they act only as a deterrent: These costs are never actually incurred at equilibrium in our model of the Law Merchant system. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 130

Categorization

• XREF: This is the classic Schellingian credible-threat logic — the deterrent works precisely because it need never be carried out, mirroring the reader’s framing of Godfather-bonds as credible commitments. — connects to: Cooperation can survive even when cheating pays seven times more per round. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 122; Credible commitment requires finding a penalty against one’s own nonperformance — Thomas C. Schelling, The Strategy of Conflict, 317; Some enforcement costs are unavoidable for sustaining honest exchange. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 137 (+2 more)

Related

• Some enforcement costs are unavoidable for sustaining honest exchange. (similarity 0.81)
• Litigation costs only matter as deterrents and are never paid at equilibrium. (similarity 0.81)
• Cooperation can survive even when cheating pays seven times more per round. (similarity 0.80)

Broader Connections

• Credible commitment requires finding a penalty against one’s own nonperformance #expands (0.75) — Thomas C. Schelling, The Strategy of Conflict, 317
• Trustworthiness enforced only by contract threats is not genuine trust #complicates (0.73)
• Some enforcement costs are unavoidable for sustaining honest exchange. #complicates (0.72) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 137
• The threat of ending an exchange is what enforces trustworthiness #expands (0.70)