Tacit Collusion under Fairness and Reciprocity

This paper explores the implications of fairness and reciprocity in dynamic market games. A reciprocal player responds to kind behavior of rivals with unkind actions (destructive reciprocity), while at the same time, it responds to kind behavior of rivals with kind actions (constructive reciprocity). The paper shows that for general perceptions of fairness, reciprocity facilitates collusion in dynamic market games. The paper also shows that this is a robust result. It holds when players' choices are strategic complements and strategic substitutes. It also holds under grim trigger punishments and optimal punishments.fairness; reciprocity; collusion; repeated games

Four essays in behavioral economics

A PhD Dissertation, presented as part of the requirements for the Degree of Doctor of Philosophy from the NOVA - School of Business and Economic

Consumer Nationalism and Multilateral Trade Cooperation

We investigate the implications of consumer nationalism for multilateral trade cooperation. We develop a two-country, two-firm model, in which the firms produce horizontally differentiated products and act as Bertrand competitors. Assuming that there is asymmetry in consumer nationalism between countries, we show that the country with the (relatively more) nationalist consumers can sustain more liberal trade policies than its trade partner in a repeated-game setting. Moreover, its most cooperative equilibrium tariff is actually decreasing in the level of its consumers' nationalism, provided that countries are not too patient. On the other hand, asymmetric consumer nationalism across countries produces an anti-cooperation effect on the incentives of the country with the non-nationalist consumers

International Environmental Cooperation under Fairness and Reciprocity

This paper explores the implications of fairness and reciprocity for self-enforcing international environmental agreements on pollution abatement. Reciprocal countries reward fair behavior (positive reciprocity), but retaliate against countries behaving unfairly (negative reciprocity). We demonstrate that reciprocal countries that have moderate expectations from each other with respect to their national abatement strategies can support a greater degree of environmental cooperation than self-interested ones. However, when only very high abatement standards are deemed fair, then reciprocity could have a detrimental effect on international environmental cooperation. Our model therefore provides a novel perspective on the role of expectations in environmental negotiations.1

Multilateral Tariff Cooperation under Fairness and Reciprocity

This paper explores the impact of fairness and reciprocity on multilateral tariff cooperation. Reciprocal countries reward kind behaviour (positive reciprocity), but retaliate against countries behaving unkindly (negative reciprocity). We demonstrate that reciprocal countries that are moderately demanding from their trading partners regarding their commercial policy can support a greater degree of cooperation than self-interested ones. However, when only very liberal import policies are considered fair, then reciprocity could have a detrimental effect on multilateral tariff cooperation.Thus, our model provides a novel perspective on the role of expectations in trade negotiations.1