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Public good provision mechanisms and reciprocity

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  • Kozlovskaya, Maria
  • Nicoló, Antonio

Abstract

This paper determines optimal public good provision mechanisms in an environment where agents are motivated by reciprocity. In a two-agent economy, we show that the standard pivot mechanism is not strategy-proof if at least one agent cares strongly enough about reciprocity. Truthful reporting maximises a player’s own payoff and hence is viewed as selfish by his opponent, who retaliates by understating demand for the public good. Incentive compatibility is restored if the mechanism is implemented sequentially. When agents are asked to report their demands in turn, a high report by the first mover (he) may result in him paying an unfairly large share of the provision cost, should the second mover (she) understate her demand. Hence, truthful reporting is not judged as selfish by the second mover, who reciprocates by stating her true demand. Our results alert the institutional designer to the importance of game dynamics when agents are non-selfish.

Suggested Citation

  • Kozlovskaya, Maria & Nicoló, Antonio, 2019. "Public good provision mechanisms and reciprocity," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 235-244.
    • Handle: RePEc:eee:jeborg:v:167:y:2019:i:c:p:235-244
    DOI: 10.1016/j.jebo.2019.02.001
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    References listed on IDEAS

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    Cited by:

    1. Pierpaolo Battigalli & Martin Dufwenberg, 2022. "Belief-Dependent Motivations and Psychological Game Theory," Journal of Economic Literature, American Economic Association, vol. 60(3), pages 833-882, September.
    2. Dhami, Sanjit & Wei, Mengxing & al-Nowaihi, Ali, 2019. "Public goods games and psychological utility: Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 361-390.

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    More about this item

    Keywords

    Psychological game theory; Mechanism design; Reciprocity;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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