Cooperative Networks: Theory and Experimental Evidence

We consider a modified pure public good game characterized by a pre-play negotiation stage, on which pairs of players can form binding cooperation commitments. As the introduced mechanism only supports pairwise rather than more inclusive commitments, it does not implement the efficient outcome. We theoretically derive the incentive compatible and efficient cooperative networks and evaluate the behavioral efficacy of the suggested mechanism to promote and stabilize cooperation. We present the results of two separate experiments. The first experiment serves to provide necessary methodological prerequisites and establishes that neither repetition with an unknown end nor voluntary costly monitoring are behaviorally sufficient to induce cooperative outcomes. In the second experiment we introduce the pairwise commitment mechanism. We show that the mechanism induces aggregate cooperation rates not only beyond the rates observed under the voluntary contribution mechanism operationalized in the first experiment, but also beyond the rate which is supported by the formation of incentive compatible networks. We observe a large heterogeneity between groups: while some groups converge to full cooperation by managing to coordinate on the formation of efficient networks over time, both networks and cooperation rates unravel in other groups. An extended version of our theoretical setting with inequity averse players in the form suggested by Fehr and Schmidt (1999) captures the stylized facts of both experiments

Collaborative Networks in Experimental Triopolies

This paper experimentally investigates the interdependence between market competition and endogenously emerging inter-firm collaboration. We restrict attention to arrangements resulting from bilateral collaboration agreements that typically characterize real world applications in which the activity concerned is a core activity of the partnering firms and risk sharing, contract enforcement and protection of proprietory knowledge are central issues. We rely on a baseline model by Goyal and Joshi (2003) which formalizes the strategic formation of collaborative networks between firms that are competing on the same product market. This model predicts strategically stable patterns of inter-firm collaboration which are empirically observed but have been ruled out in the previous theoretical literature. In a two-stage game, firms decide to form bilateral collaboration links, whose formation is costly but reduces marginal production costs, before they compete in quantity on the market. We report the results of a series of experiments. The first experiment is designed as a straightforward theory-test simulating a one-shot interaction. We manipulate the cost of link formation in different treatments. Our data almost perfectly match the predictions for both stages whenever the link formation costs are extreme and the predicted networks symmetric (empty or complete networks). In the case of intermediate link formation costs where the predicted networks are asymmetric, subjects rarely form asymmetric networks. When they do, observed and predicted quantities are less in accordance than for symmetric networks. Collusion cannot account for the observed behavior. In our second experiment we reject the conjecture that these findings are driven out by experience in a setting in which we increase the implemented number of repetitions of the two-stage game. Finally, in our third experiment we reduce the complexity of the setting by transforming the original two-stage game into a one-stage game where the formation of inter-firm networks directly determines firms’ payoffs. These are derived from assumed equilibrium market outputs on the here absent competition stage. In this case, observed networks coincide with the predicted ones indicating that experimental subjects’ limited capacity to foresee the outcomes of the market stage may be driving the earlier discrepancies.Endogenous formation of networks; Cournot competition; Collusion; Experiments

Public Choice by Referenda or Delegation. An Experimental Comparison of Direct and Indirect Democracy

Direct democracy with its use of referenda avoids the prototypical principal-agent problems of delegation in indirect democracies, especially since elected representatives are usually not committed by law to keep their promises. Sequential or more complex referenda may, however, result in an inferior combination of realized policy measures. Thus, it is an open question which type of institution (direct or indirect democracy) will be more efficient. Our experimental study explores this issue and finds that direct democracy seems to perform better.referenda, delegation, experiment

Evolution of Spontaneous Social Exchange - An Experimental Study

Each of several exchange partners is the monopoly owner of a specific commodity which she can share with others. It is optimal to keep the own endowment, but all would gain by mutual gift exchange. Participants play the game repeatedly in constant groups (partner design) and can establish stable exchange relations over time. Will they include all group members, as suggested by e#ciency, will early exploiters be permanently isolated (ostracism) and will groups become more e#cient over time? To answer these questions the game is repeated once with a new group. We also vary the group size

Evolution of Spontaneous Social Exchange - An Experimental Study -

Each of several exchange partners is the monopoly owner of a specific commodity which she can share with others. It is optimal to keep the own endowment, but all would gain by mutual gift exchange. Participants play the game repeatedly in constant groups (partner design) and can establish stable exchange relations over time. Will they include all group members, as suggested by efficiency, will early exploiters be permanently isolated (ostracism) and will groups become more efficient over time? To answer these questions the game is repeated once with a new group. We also vary the group size.Evolution of exchange networks, bilateral reciprocity, mutual gift giving, ostracism, efficient trade