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Fear of being left alone drives inefficient exit from partnerships. An experiment

  • Alexia Gaudeul

    ()

    (DFG RTG 1411, Friedrich-Schiller-Universität Jena)

  • Paolo Crosetto

    ()

    (UMR GAEL INRA, Universite Pierre Mendes France, Grenoble)

  • Gerhard Riener

    ()

    (DICE, Heinrich-Heine-Universität Düsseldorf)

We explore in an experiment what leads to the breakdown of partnerships. Subjects are assigned a partner and participate in a repeated public good game with stochastic outcomes. They can choose each period between staying in the public project or working on their own. There is excessive exit as subjects overestimate the likelihood their partner will leave. High barriers to exit thus improve welfare. We observe that exit is driven by failure within the common project but also by pay-off comparisons across options and beliefs about being exploited. Those considerations increasingly matter as we lower exit costs across treatments.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2014-012.

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Date of creation: 08 Apr 2014
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Handle: RePEc:jrp:jrpwrp:2014-012
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