Endogenous Transfers in the Prisonerâ€™s Dilemma Game: An Experimental Test Of Cooperation And Coordination
AbstractWe study experimentally a two-stage compensation mechanism for promoting cooperation in prisonerâ€™s dilemma games. In stage 1, players simultaneously choose binding non-negative amounts to pay their counterparts for cooperating in a given prisonerâ€™s dilemma game, and then play the prisonerâ€™s dilemma game in stage 2 with knowledge of these amounts. For the asymmetric prisonerâ€™s dilemma games we consider, all payment pairs consistent with mutual cooperation in subgame-perfect equilibrium transform these prisonerâ€™s dilemma games into coordination games, with both mutual cooperation and mutual defection as Nash equilibria in the stage-2 game. We find considerable empirical support for the mechanism, as cooperation is much more common when these endogenous transfer payments are feasible. We identify patterns among transfer pairs that affect the likelihood of cooperation. Mutual cooperation is most likely when the payments are identical; it is also substantially more likely with payment pairs that bring the payoffs from mutual cooperation closer together than with payment pairs that cause them to diverge. There is substantial scope for this compensation mechanism to achieve beneficial social outcomes in commerce and in international affairs, and reason to be concerned about the ability of firms to design collusive agreements.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt9cm846c4.
Date of creation: 06 Feb 2005
Date of revision:
Contact details of provider:
Postal: 2127 North Hall, Santa Barbara, CA 93106-9210
Phone: (805) 893-3670
Fax: (805) 893-8830
Web page: http://www.escholarship.org/repec/ucsbecon_dwp/
More information through EDIRC
Prisonerâ€™s dilemma; Endogenous transfer payments; Compensation mechanism; Coase theorem; Coordination games; Equilibrium selection;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Duffy & Jack Ochs, 2004.
"Cooperative Behavior and the Frequency of Social Interaction,"
Levine's Working Paper Archive
122247000000000060, David K. Levine.
- Duffy, John & Ochs, Jack, 2009. "Cooperative behavior and the frequency of social interaction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 785-812, July.
- John Duffy & Jack Ochs, 2006. "Cooperative Behavior and the Frequency of Social Interaction," Working Papers 274, University of Pittsburgh, Department of Economics, revised Jul 2008.
- John Duffy & Jack Ochs, 2004. "Cooperative Behavior and the Frequency of Social Interaction," Levine's Bibliography 122247000000000108, UCLA Department of Economics.
- Gary Charness & Matthew Rabin, 2002.
"Understanding Social Preferences With Simple Tests,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(3), pages 817-869, August.
- Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
- Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
- Harrison, Glenn W & McKee, Michael, 1985. "Experimental Evaluation of the Coase Theorem," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 653-70, October.
- Roth, Alvin E, 1988. "Laboratory Experimentation in Economics: A Methodological Overview," Economic Journal, Royal Economic Society, vol. 98(393), pages 974-1031, December.
- Hoffman, Elizabeth & Spitzer, Matthew L, 1982. "The Coase Theorem: Some Experimental Tests," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 73-98, April.
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If references are entirely missing, you can add them using this form.