27 Pages Posted: 18 Feb 2012 Last revised: 8 Sep 2014
Date Written: August 2014
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.
Keywords: efficiency, Conditional Cooperation, Inequity Aversion, negative externalities, prisoner’s dilemma, Beliefs, guilt aversion
Suggested Citation: Suggested Citation
Engel, Christoph and Zhurakhovska, Lilia, Conditional Cooperation With Negative Externalities – An Experiment (August 2014). MPI Collective Goods Preprint, No. 2012/2. Available at SSRN: https://ssrn.com/abstract=2007029 or http://dx.doi.org/10.2139/ssrn.2007029