Download this Paper Open PDF in Browser

Conditional Cooperation With Negative Externalities – An Experiment

27 Pages Posted: 18 Feb 2012 Last revised: 8 Sep 2014

Christoph Engel

Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Universität Osnabrück - Faculty of Law

Lilia Zhurakhovska

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Duisburg-Essen

Date Written: August 2014

Abstract

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

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

Christoph Engel (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+049 228 914160 (Phone)
+049 228 9141655 (Fax)

HOME PAGE: http://www.coll.mpg.de/engel.html

University of Bonn - Faculty of Law & Economics

Postfach 2220
D-53012 Bonn
Germany

Universität Osnabrück - Faculty of Law

c/o Prof. Dr. Schneider
Osnabruck, D-49069
Germany

Lilia Zhurakhovska

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
Bonn, 53113
Germany

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Paper statistics

Downloads
54
Rank
321,589
Abstract Views
1,003