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Institution formation and cooperation with heterogeneous agents

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  • Kube, Sebastian
  • Schaube, Sebastian
  • Schildberg-Hörisch, Hannah
  • Khachatryan, Elina

Abstract

Driven by an ever-growing number of studies that explore the effectiveness of institutional mechanisms meant to mitigate cooperation problems, recent years have seen an increasing interest in the endogenous implementation of these institutions. In this paper, we test within a unified framework how the process of institution formation is affected by three key aspects of natural environments: (i) heterogeneity among players in the benefits of cooperation, (ii) (a)symmetry in players׳ institutional obligations, and (iii) potential trade-offs between efficiency and equality in payoff allocations. We observe social preferences to be limiting the scope for institution formation. Inequality-averse players frequently object to institutions that fail to address differences in players׳ benefits from cooperation – even if rejecting the institution causes monetary losses to all players. Relating our findings to previous studies on institution formation, we discuss potential advantages and drawbacks of stipulating unanimous support for implementing institutions that foster cooperation.

Suggested Citation

  • Kube, Sebastian & Schaube, Sebastian & Schildberg-Hörisch, Hannah & Khachatryan, Elina, 2015. "Institution formation and cooperation with heterogeneous agents," European Economic Review, Elsevier, vol. 78(C), pages 248-268.
  • Handle: RePEc:eee:eecrev:v:78:y:2015:i:c:p:248-268
    DOI: 10.1016/j.euroecorev.2015.06.004
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    Cited by:

    1. Gallier, Carlo & Langbein, Jörg & Vance, Colin, 2016. "That's my turf: An experimental analysis of territorial use rights for fisheries in Indonesia," ZEW Discussion Papers 16-046, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Vollan, Björn & Landmann, Andreas & Zhou, Yexin & Hu, Biliang & Herrmann-Pillath, Carsten, 2017. "Cooperation and authoritarian values: An experimental study in China," European Economic Review, Elsevier, vol. 93(C), pages 90-105.
    3. Christoph Engel & Svenja Hippel, 2017. "Experimental Social Planners: Good Natured, but Overly Optimistic," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2017_23, Max Planck Institute for Research on Collective Goods.
    4. Gallier, Carlo & Langbein, Jörg & Vance, Colin, 2016. "That's my turf: An experimental analysis of territorial use rights for fisheries in Indonesia," Ruhr Economic Papers 651, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Felix Albrecht & Sebastian Kube & Christian Traxler, 2016. "Cooperation and Punishment: The Individual-Level Perspective," CESifo Working Paper Series 6284, CESifo Group Munich.
    6. Ramalingam, Abhijit & Godoy, Sara & Morales, Antonio J. & Walker, James M., 2016. "An individualistic approach to institution formation in public good games," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 18-36.
    7. Xiaochuan Huang & Takehito Masuda & Yoshitaka Okano & Tatsuyoshi Saijo, 2014. "Cooperation among behaviorally heterogeneous players in social dilemma with stay or leave decisions," Working Papers SDES-2014-7, Kochi University of Technology, School of Economics and Management, revised Feb 2015.

    More about this item

    Keywords

    Institution formation; Unanimity voting; Cooperation problems; Heterogeneous agents; Inequality aversion;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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