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Do binding agreements solve the social dilemma ?

  • Emmanuel Sol

    ()

    (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - CNRS : UMR5474 - INRA : UR1135 - CIHEAM - Université Montpellier I - Montpellier SupAgro)

  • Sylvie Thoron

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Marc Willinger

    ()

    (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - CNRS : UMR5474 - INRA : UR1135 - CIHEAM - Université Montpellier I - Montpellier SupAgro)

We investigate whether "binding agreements" can provide a solution to the social dilemma that arises in the presence of pure public goods. By signing a binding agreement, players can prevent free riding by the contributors to a public good. However, a well known theoretical result is that the outcome of the endogenous formation of agreements is not necessarily efficient. In our setting, the individual level of contribution to the public good increases with the size of the coalition reaching an agreement and the global coalition is always the socially optimal structure. Agreements form sequentially and the equilibrium outcome is an asymmetric structure, which consists of two coalitions. Our experiment therefore lends force to the theoretical result that outcomes may be inefficient. In fact, we observe an outcome which is even less efficient than that predicted by the equilibrium agreement structure. However, it seems that when subjects reach agreements they do so with the intention of cooperating rather than free riding. Furthermore, it seems that they “learn to cooperate” over time and reach the global agreement more often towards the end of sessions.Keywords

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Paper provided by HAL in its series Working Papers with number halshs-00410776.

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Date of creation: 2006
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Handle: RePEc:hal:wpaper:halshs-00410776
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  17. Selten,Reinhard, . "Properties of a measure of predictive succes," Discussion Paper Serie B 130, University of Bonn, Germany.
  18. T. K. Ahn & R. Mark Isaac & Timothy C. Salmon, 2008. "Endogenous Group Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(2), pages 171-194, 04.
  19. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June.
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  22. Karl-Martin Ehrhart & Claudia Keser, 1999. "Mobility and Cooperation: On the Run," CIRANO Working Papers 99s-24, CIRANO.
  23. Sylvie Thoron, 1998. "Formation of a Coalition-Proof Stable Cartel," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 63-76, February.
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