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Conditional cooperation with negative externalities – An experiment

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  • Engel, Christoph
  • Zhurakhovska, Lilia

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.

Suggested Citation

  • Engel, Christoph & Zhurakhovska, Lilia, 2014. "Conditional cooperation with negative externalities – An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 252-260.
  • Handle: RePEc:eee:jeborg:v:108:y:2014:i:c:p:252-260
    DOI: 10.1016/j.jebo.2014.10.005
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    Cited by:

    1. James Bland & Nikos Nikiforakis, 2013. "Tacit Coordination in Games with Third-Party Externalities," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_19, Max Planck Institute for Research on Collective Goods.
    2. Amos Witztum, 2016. "Experimental Economics, Game Theory and Das Adam Smith Problem," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 42(4), pages 528-556, September.
    3. Lohse, Johannes, 2015. "Cooperation at a discount - Will I give away your money?," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113151, Verein für Socialpolitik / German Economic Association.
    4. Dekel, Sagi & Fischer, Sven & Zultan, Ro’i, 2017. "Potential Pareto Public Goods," Journal of Public Economics, Elsevier, vol. 146(C), pages 87-96.
    5. repec:spr:inrvec:v:64:y:2017:i:3:d:10.1007_s12232-017-0270-y is not listed on IDEAS
    6. Bonroy, Olivier & Garapin, Alexis & Hamilton, Stephen F. & Souza Monteiro, Diogo M., 2015. "Mislabelling in Collective Labels: an experimental analysis," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205482, Agricultural and Applied Economics Association;Western Agricultural Economics Association.

    More about this item

    Keywords

    Conditional cooperation; Negative externalities; Prisoner's dilemma; Beliefs; Guilt aversion;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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