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Penalties and Rewards As Inducements To Cooperate

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Author Info
Cheng-Zhong Qin (University of California, Santa Barbara)

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Abstract

This paper considers self-stipulated penalties for defection and rewards for cooperation as inducements to cooperate in the prisoner's dilemma. The paper explicitly characterizes penalties and rewards that are necessary and suffcient to induce the players to cooperate. The characterization results imply a partion of prisoner's dilemma games into four classes according to whether both penalties and rewards can induce the players to cooperate; penalties but not rewards can induce the players to cooperate; rewards but not penalties can induce the players to cooperate; and neither penalties nor rewards can induce the players to cooperate. The paper also discusses implications of the results to "penalty clauses" in the law of contracts.

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Publisher Info
Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 13-02R.

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Date of creation: 03 Feb 2005
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Handle: RePEc:cdl:ucsbec:13-02r

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Related research
Keywords: The prisoner's dilemma; Nash equilibrium; subgame-perfect equilibrium;

References listed on IDEAS
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  1. Ziss, Steffen, 1997. "A Solution to the Problem of Externalities When Agents Are Well-Informed: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 231-35, March. [Downloadable!] (restricted)
  2. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September. [Downloadable!] (restricted)
  3. Hal R. Varian, 1994. "A Solution to the Problem of Externalities when Agents are Well-Informed}," Microeconomics 9401003, EconWPA. [Downloadable!]
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  4. Charness, Gary & Frechette, Guillaume R. & Qin, Cheng-Zhong, 2007. "Endogenous transfers in the Prisoner's Dilemma game: An experimental test of cooperation and coordination," Games and Economic Behavior, Elsevier, vol. 60(2), pages 287-306, August. [Downloadable!] (restricted)
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  5. repec:att:wimass:19199918 is not listed on IDEAS
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This page was last updated on 2009-10-20.

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