Incentive and Screening under Uncertainty: A Model of Cooperation with Randomly Distributed Payoffs

22 Pages Posted: 16 Dec 2014

See all articles by Jia Chen

Jia Chen

University of Colorado at Boulder

Date Written: 2014

Abstract

Most of the existing theories of international cooperation implicitly adopted the assumption that defection or cheating are easily detectable, either because the behavior of other actors is directly observable, or the payoffs received by the relevant actors are perfect indicators of past behavior. These assumptions are not tenable in many contexts of international cooperation where the observability of behavior is low and payoffs are volatile. This paper is a theoretical examination of how such “objective uncertainty” interacts with the strategic incentives of actors in international cooperation. The model developed in the paper shows the randomness of payoffs have a major impact on the cooperative behavior of actors. Actors adopt very different strategies given different structures of payoff uncertainty. In particular, the presence of observable behavior and payoff uncertainty induce a bifurcation in cooperation objectives and hence strategies. In such a context, the objectives of inducing cooperative behavior from the opponent, which begets moderate strategies of selection, is now incompatible with the objectives of screening different types of the opponent which begets a more unusual and counter-intuitive strategies.

Keywords: international institutions, information asymmetry, cooperation

Suggested Citation

Chen, Jia, Incentive and Screening under Uncertainty: A Model of Cooperation with Randomly Distributed Payoffs (2014). APSA 2014 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2452216

Jia Chen (Contact Author)

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
264
PlumX Metrics