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Conditional Cooperation With Negative Externalities – An Experiment

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  • Christoph Engel

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Lilia Zhurakhovska

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

Empirically, the commons are not as tragic as standard theory predicts. The predominant explanation for this finding is conditional cooperation. Yet many real life situations involve insiders, who are directly affected by a dilemma, and outsiders, who may be harmed if the insiders overcome the dilemma. The quintessential illustration is oligopoly. If insiders overcome their dilemma and collude, this inflicts harm on the opposite market side. In our experiment, harm on outsiders significantly reduces conditional cooperation of insiders. We can exclude that this result is driven by inequity aversion, reciprocity or efficiency seeking. Only guilt aversion can rationalize our findings, with guilt being most pronounced if the active insiders not only inflict harm on the outsider, but increase their own payoff at the expense of the outsider.

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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2012_02.

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Date of creation: Jan 2012
Date of revision: Aug 2014
Handle: RePEc:mpg:wpaper:2012_02

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Keywords: efficiency; Conditional Cooperation; Inequity Aversion; negative externalities; prisoner’s dilemma; Beliefs; guilt aversion;

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Cited by:
  1. James Bland & Nikos Nikiforakis, 2013. "Tacit Coordination in Games with Third-Party Externalities," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_19, Max Planck Institute for Research on Collective Goods.

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