Conspiracy Against the Public €“ an Experiment on Collusion

25 Pages Posted: 21 Feb 2019

See all articles by Åshild A. Johnsen

Åshild A. Johnsen

Norwegian University of Life Sciences (NMBU) - School of Economics and Business

Ola Kvaloy

University of Stavanger

Date Written: 2018

Abstract

 We study to what extent collusive behavior is affected by the awareness of negative externalities. Theories of outcome-based social preferences suggest that negative externalities make collusion harder to sustain than predicted by standard economic theory, while sociological theories of social ties and intergroup comparisons suggest that bilateral cooperation can be strengthened if there exist outsiders that gain from cooperative break down. We investigate this in a laboratory experiment. Subjects play the infinitely repeated prisoner’s dilemma with and without a negative externality. The externality is implemented by letting subjects make a positive contribution to a public good if they choose to defect from cooperation, i.e. cooperation is collusive since the gains are at the expense of the public. We find that this negative externality increases collusive behavior. Subjects cooperate more if it hurts a third party.

Keywords: infinitely repeated prisoner’s dilemma game, negative externality, cooperation, collusion, experiment

JEL Classification: C910

Suggested Citation

Johnsen, Åshild A. and Kvaloy, Ola, Conspiracy Against the Public €“ an Experiment on Collusion (2018). CESifo Working Paper No. 7308, Available at SSRN: https://ssrn.com/abstract=3338637 or http://dx.doi.org/10.2139/ssrn.3338637

Åshild A. Johnsen (Contact Author)

Norwegian University of Life Sciences (NMBU) - School of Economics and Business ( email )

P.O. Box 5003
NO-1432 Aas
Norway

Ola Kvaloy

University of Stavanger ( email )

N-4036 Stavanger
Norway

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