Conditional Cooperation With Negative Externalities – An Experiment
Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Universität Osnabrück - Faculty of Law
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods
MPI Collective Goods Preprint, No. 2012/2
Empirically, the commons are not as tragic as standard theory predicts. The predominant explanation for this finding is conditional cooperation. Yet many real life situations involve insiders, who are directly affected by a dilemma, and outsiders, who may be harmed if the insiders overcome the dilemma. The quintessential illustration is oligopoly. If insiders overcome their dilemma and collude, this inflicts harm on the opposite market side. In our experiment, harm on outsiders significantly reduces conditional cooperation of insiders. We can exclude that this result is driven by inequity aversion, reciprocity or efficiency seeking. Only guilt aversion can rationalize our findings, with guilt being most pronounced if the active insiders not only inflict harm on the outsider, but increase their own payoff at the expense of the outsider.
Number of Pages in PDF File: 27
Keywords: efficiency, Conditional Cooperation, Inequity Aversion, negative externalities, prisoner’s dilemma, Beliefs, guilt aversion
Date posted: February 18, 2012 ; Last revised: September 8, 2014
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