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Self-Commitment-Institutions and Cooperation in Overlapping Generations Games

  • Francesco Lancia

    ()

  • Alessia Russo

    ()

This paper focuses on a two-period OLG economy with public imperfect observability over the intergenerational cooperative dimension. Individual endowment is at free disposal and perfectly observable. In this environment we study how a new mechanism, we call Self-Commitment-Institution (SCI), outperforms personal and community enforcement in achieving higher ex-ante efficiency. Social norms with and without SCI are characterized. If social norms with SCI are implemented, agents might freely dispose of their endowment. As long as they reduce their marginal gain from deviation in terms of current utility, they also credibly self-commit on intergenerational cooperation. Under quite general conditions we find that, even if individual strategies are still characterized by behavioral uncertainty, the introduction of SCI relaxes the inclination toward opportunistic behavior and sustains higher efficiency compared to social norms without SCI. We quantify the value of SCI and investigate the role of memory with different social norms. Finally, applications on intergenerational public good games and transfer games with productive SCI are provided.

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Paper provided by University of Modena and Reggio E., Dept. of Economics "Marco Biagi" in its series Center for Economic Research (RECent) with number 073.

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Length: pages 30
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:mod:recent:073
Contact details of provider: Web page: http://www.recent.unimore.it/

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  1. Harold L. Cole & Narayana R. Kocherlakota, 2001. "Finite memory and imperfect monitoring," Staff Report 287, Federal Reserve Bank of Minneapolis.
  2. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
  3. Michihiro Kandori & Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," Levine's Bibliography 122247000000000055, UCLA Department of Economics.
  4. Francesco Lancia & Alessia Russo, 2013. "A Dynamic Politico-Economic Model of Intergenerational contracts," Vienna Economics Papers 1304, University of Vienna, Department of Economics.
  5. Marina Murat & Barbara Pistoresi & Alberto Rinaldi, 2011. "Transnational social capital and FDI.Evidence from Italian associations worldwide," Department of Economics 0654, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
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  7. Boldrin, Michele & Montes, Ana, 2002. "The Intergenerational State: Education and Pensions," CEPR Discussion Papers 3275, C.E.P.R. Discussion Papers.
  8. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  9. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
  10. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  11. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, vol. 4(3), pages 426-449, July.
  12. Salant, David J., 1991. "A repeated game with finitely lived overlapping generations of players," Games and Economic Behavior, Elsevier, vol. 3(2), pages 244-259, May.
  13. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2007. "A `Super Folk Theorem' in Dynastic Repeated Games," Levine's Bibliography 321307000000000926, UCLA Department of Economics.
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