Efficient Investment via Assortative Matching
28 Pages Posted: 16 Feb 2015
Date Written: January 15, 2015
This paper compares pre-commitment investment strategy in a linear public goods game using two different matching protocols: assortative and random matching. We express the payoff function as an investment decision in which players pre-commit to an investment level and then a third party (the experimenter) matches subjects into pairs after having observed the investment decisions. After ruling out a mixed NE, we adopt the asymmetric equilibrium suggested by Gunnthorsdottir et al. (2010) and we (surprisingly) find that subject behavior is in line with the predictions. The mean investment level under the assortative matching treatment is remarkably high and is close to 90 percent of the initial endowment, when compared to the random matching treatment (50 percent of the initial endowment).
Keywords: Public goods, Assortative Matching, Cooperation
JEL Classification: C71, C78, C91, C92
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