Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Good Experiments

We provide a test of the role of social preferences and beliefs in voluntary cooperation and its decline. We elicit individuals’ cooperation preferences in one experiment and use them – as well as subjects’ elicited beliefs – to explain contributions to a public good played repeatedly. We find substantial heterogeneity in people’s preferences. With simulation methods based on this data, we show that the decline of cooperation can be driven by the fact that most people have a preference to contribute less than others, rather than by their changing beliefs of others’ contribution over time. Universal free riding is very likely despite the fact that most people are not selfish.public goods experiments, social preferences, conditional cooperation, free riding

Moral Property Rights in Bargaining

In many business transactions, in labor-management relations, in international conflicts, and welfare state reforms claims acquired in the past seem to create strong entitlements that shape current negotiations. Despite their importance, the role of entitlements in negotiations has not received much attention. We fill the gap by designing an experiment that allows us to measure the entitlements and to track them through the whole negotiation process. We find strong entitlement effects that shape opening offers, bargaining duration, concessions and reached (dis-)agreements. We argue that entitlements constitute a “moral property right” that is influential independent of negotiators’ legal property rights.moral property rights, fairness judgements, bargaining with claims, self-serving bias

Fairness and Retaliation: The Economics of Reciprocity

This paper shows that reciprocity has powerful implications for many economic domains. It is an important determinant in the enforcement of contracts and social norms and enhances the possibilities of collective action greatly. Reciprocity may render the provision of explicit incentive inefficient because the incentives may crowd out voluntary co-operation. It strongly limits the effects to competition in markets with incomplete contracts and gives rise to noncompetitive wage differences. Finally, reciprocity it is also a strong force contributing to the existence of incomplete contracts.

Heterogeneous Social Preferences and the Dynamics of Free Riding in Public Good Experiments

Public goods experiments, social preferences, conditional cooperation, free riding

Cooperation and Punishment in Public Goods Experiments

This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. The more free riders negatively deviate from the group standard the more they are punished. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat. We show, in particular, that in the presence of a costly punishment opportunity almost complete cooperation can be achieved and maintained although, under the standard assumptions of rationality and selfishness, there should be no cooperation at all. We also show that free riding causes strong negative emotions among cooperators. The intensity of these emotions is the stronger the more the free riders deviate from the group standard. Our results provide, therefore, support for the hypothesis that emotions are guarantors of credible threats.Voluntary cooperation, public good, punishment, emotions, social norms, experiments

Reputation or Reciprocity? An Experimental Investigation

Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long-term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one-shot and repeated) of a gift-exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that in the repeated game some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that a long-term interaction is a reciprocity-compatible contract enforcement device.Reciprocity, reputation, repeated games, incomplete contracts

Altruistic Punishment in Humans

Human cooperation is an evolutionary puzzle. Unlike other creatures, people frequently cooperate with genetically unrelated strangers, often in large groups, with people they will never meet again, and when reputation gains are small or absent. These patterns of cooperation cannot be explained by the nepotistic motives associated with the evolutionary theory of kin selection and the sel®sh motives associated with signalling theory or the theory of reciprocal altruism. Here we show experimentally that the altruistic punishment of defectors is a key motive for the explanation of cooperation. Altruistic punishment means that individuals punish, although the punishment is costly for them and yields no material gain. We show that cooperation ¯ourishes if altruistic punishment is possible, and breaks down if it is ruled out. The evidence indicates that negative emotions towards defectors are the proximate mechanism behind altruistic punishment. These results suggest that future study of the evolution of human cooperation should include a strong focus on explaining altruistic punishment.Human cooperation,Altruistic, punishment

The roles of incentives and voluntary cooperation for contractual compliance

Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.principal-agent games; gift-exchange experiments; incomplete contracts, explicit incentives; implicit incentives; repeated games; separability; experiments

Culture and Cooperation

Does the cultural background influence the success with which genetically unrelated individuals cooperate in social dilemma situations? In this paper we provide an answer by analyzing the data of Herrmann et al. (Science 2008, pp. 1362-1367), who study cooperation and punishment in sixteen subject pools from six different world cultures (as classified by Inglehart & Baker (American Sociological Review 2000, pp. 19-51)). We use analysis of variance to disentangle the importance of cultural background relative to individual heterogeneity and group-level differences in cooperation. We find that culture has a substantial influence on the extent of cooperation, in addition to individual heterogeneity and group-level differences identified by previous research. The significance of this result is that cultural background has a substantial influence on cooperation in otherwise identical environments. This is particularly true in the presence of punishment opportunities.human cooperation, punishment, culture, experimental public good games

Individual-level loss aversion in riskless and risky choices

Loss aversion can occur in riskless and risky choices. Yet, there is no evidence whether people who are loss averse in riskless choices are also loss averse in risky choices. We measure individual-level loss aversion in riskless choices in an endowment effect experiment by eliciting both WTA and WTP from each of our 360 subjects (randomly selected customers of a car manufacturer). All subjects also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in the riskless choice task and loss aversion in the risky choice task are highly significantly and strongly positively correlated. We find that in both choice tasks loss aversion increases in age, income, and wealth, and decreases in education.Loss aversion, endowment effect, field experiments