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Self-Commitment-Institutions and Cooperation in Overlapping Generations Games

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  • Francesco Lancia

    ()

  • Alessia Russo

    ()

Abstract

This paper focuses on a two-period OLG economy with public imperfect observability over the intergenerational cooperative dimension. Individual endowment is at free disposal and perfectly observable. In this environment we study how a new mechanism, we call Self-Commitment-Institution (SCI), outperforms personal and community enforcement in achieving higher ex-ante efficiency. Social norms with and without SCI are characterized. If social norms with SCI are implemented, agents might freely dispose of their endowment. As long as they reduce their marginal gain from deviation in terms of current utility, they also credibly self-commit on intergenerational cooperation. Under quite general conditions we find that, even if individual strategies are still characterized by behavioral uncertainty, the introduction of SCI relaxes the inclination toward opportunistic behavior and sustains higher efficiency compared to social norms without SCI. We quantify the value of SCI and investigate the role of memory with different social norms. Finally, applications on intergenerational public good games and transfer games with productive SCI are provided.

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Bibliographic Info

Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 073.

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Length: pages 30
Date of creation: Sep 2011
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Handle: RePEc:mod:recent:073

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Web page: http://www.recent.unimore.it/
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Keywords: Cooperation; Free disposal; Imperfect public monitoring; Memory; Overlapping generation game; Self-Commitment Institution;

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  1. Salant, David J., 1991. "A repeated game with finitely lived overlapping generations of players," Games and Economic Behavior, Elsevier, vol. 3(2), pages 244-259, May.
  2. Harold L. Cole & Narayana R. Kocherlakota, 2000. "Finite memory and imperfect monitoring," Working Papers 604, Federal Reserve Bank of Minneapolis.
  3. Bhaskar, V., 1994. "Informational Constraints and the Overlapping Generations Model : Folk and Anti-Folk Theorems," Discussion Paper 1994-85, Tilburg University, Center for Economic Research.
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  5. Francesco Lancia & Alessia Russo, 2013. "A Dynamic Politico-Economic Model of Intergenerational contracts," Vienna Economics Papers 1304, University of Vienna, Department of Economics.
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  7. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, vol. 4(3), pages 426-449, July.
  8. Kaganovich, M & Zilcha, I, 1997. "Education, Social Security and Growth," Papers 1-97, Tel Aviv.
  9. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
  10. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  11. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  12. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  13. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2007. "A `Super Folk Theorem' in Dynastic Repeated Games," Levine's Bibliography 321307000000000926, UCLA Department of Economics.
  14. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
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