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The One who Gives Too Early, Gives Twice: Cooperation, Blood Feuds and Third-Party Institutions

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  • Elias L. Khalil

Abstract

Third-party institutions (judges, real-estate agents, referees, mediators, and arbiters) are designed to avoid mis-coordination among potential cooperators. They differ from first-party institutions (lobbyists) who act as rent-seekers in bargaining. They also differ from second-party institutions (auditors) who act as monitors in principal-agency problems. Third-party institutions are geared to minimize distorted belief formation, which arises from the uncertainty of how to judge the over-contribution of others: Is it the outcome of a positive income shock or is it expressive of real income being higher than estimated income? Given positively skewed income distribution and bounded rationality, such uncertainty leads to mis-judgments of the contribution of others as “unfair,” leading to the collapse of cooperation.

Suggested Citation

  • Elias L. Khalil, 2012. "The One who Gives Too Early, Gives Twice: Cooperation, Blood Feuds and Third-Party Institutions," Monash Economics Working Papers 24-12, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2012-24
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/2412theonewhogiveskhalil.pdf
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    References listed on IDEAS

    as
    1. Miller, John H. & Andreoni, James, 1991. "Can evolutionary dynamics explain free riding in experiments?," Economics Letters, Elsevier, vol. 36(1), pages 9-15, May.
    2. Ambrus, Attila & Pathak, Parag A., 2011. "Cooperation over finite horizons: A theory and experiments," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 500-512, August.
    3. Botelho, Anabela & Harrison, Glenn W. & Pinto, Lígia M. Costa & Rutström, Elisabet E., 2009. "Testing static game theory with dynamic experiments: A case study of public goods," Games and Economic Behavior, Elsevier, vol. 67(1), pages 253-265.3, September.
    4. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    5. Khalil, Elias L, 1997. "Is the Firm an Individual?," Cambridge Journal of Economics, Oxford University Press, vol. 21(4), pages 519-544, July.
    6. H. Peyton Young, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-122, Spring.
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    More about this item

    Keywords

    Conditional Cooperation; Unfairness; Super-Fairness; Big-Headedness (Pride); Distorted Belief Hypothesis; Positively Skewed Income Distribution; Bounded Rationality; Heuristics of Reciprocity; Arbitrators (third-party institutions);

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation

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