Institution Formation and Cooperation with Heterogeneous Agents

Sebastian Kube, Sebastian Schaube (), Hannah Schildberg-Hörisch () and Elina Khachatryan ()
Additional contact information
Sebastian Schaube: University of Bonn
Hannah Schildberg-Hörisch: Max Planck Institute for Research on Collective Goods
Elina Khachatryan: University of Kassel
Authors registered in the RePEc Author Service: Hannah Schildberg-Hoerisch ()

No 8533, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Driven by an ever-growing number of studies that explore the effectiveness of institutional mechanisms meant to mitigate cooperation problems, recent years have seen an increasing interest in the endogenous implementation of these institutions. In this paper, we test within a unified framework how the process of institution formation is affected by three key aspects of natural environments: i) heterogeneity among players in the benefits of cooperation, ii) (a)symmetry in players' institutional obligations, and iii) potential trade-offs between efficiency and equality in payoff allocations. We observe social preferences to be limiting the scope for institution formation. Inequality-averse players frequently object to institutions that fail to address differences in players' benefits from cooperation – even if rejecting the institution causes monetary losses to all players. Relating our findings to previous studies on institution formation, we discuss potential advantages and drawbacks of stipulating unanimous support for implementing institutions that foster cooperation.

Keywords: institution formation; unanimity voting; cooperation problems; heterogeneous agents; inequality aversion (search for similar items in EconPapers)
JEL-codes: C90 D02 D62 D63 H41 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014-10
New Economics Papers: this item is included in nep-cdm, nep-cse and nep-evo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: European Economic Review, 2015, 78, 248-268.

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Journal Article: Institution formation and cooperation with heterogeneous agents (2015)
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