The One who Gives Too Early, Gives Twice: Cooperation, Blood Feuds and Third-Party Institutions
AbstractThird-party institutions (judges, real-estate agents, referees, mediators, and arbiters) are designed to avoid mis-coordination among potential cooperators. They differ from first-party institutions (lobbyists) who act as rent-seekers in bargaining. They also differ from second-party institutions (auditors) who act as monitors in principal-agency problems. Third-party institutions are geared to minimize distorted belief formation, which arises from the uncertainty of how to judge the over-contribution of others: Is it the outcome of a positive income shock or is it expressive of real income being higher than estimated income? Given positively skewed income distribution and bounded rationality, such uncertainty leads to mis-judgments of the contribution of others as “unfair,” leading to the collapse of cooperation.
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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 24-12.
Length: 37 pages
Date of creation: Sep 2012
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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Find related papers by JEL classification:
- D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
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- NEP-ALL-2012-09-30 (All new papers)
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