Endogenous Transfers in the Prisoner's Dilemma Game: An Experimental Test Of Cooperation And Coordination

Gary Charness () and Cheng-Zhong Qin
Additional contact information
Cheng-Zhong Qin: University of California, Santa Barbara

No 01-05, University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: We study experimentally a two-stage compensation mechanism for promoting cooperation in prisoner's dilemma games. In stage 1, players simultaneously choose binding non-negative amounts to pay their counterparts for cooperating in a given prisoner's dilemma game, and then play the prisoner's dilemma game in stage 2 with knowledge of these amounts. For the asymmetric prisoner's dilemma games we consider, all payment pairs consistent with mutual cooperation in subgame-perfect equilibrium transform these prisoner's dilemma games into coordination games, with both mutual cooperation and mutual defection as Nash equilibria in the stage-2 game. We find considerable empirical support for the mechanism, as cooperation is much more common when these endogenous transfer payments are feasible. We identify patterns among transfer pairs that affect the likelihood of cooperation. Mutual cooperation is most likely when the payments are identical; it is also substantially more likely with payment pairs that bring the payoffs from mutual cooperation closer together than with payment pairs that cause them to diverge. There is substantial scope for this compensation mechanism to achieve beneficial social outcomes in commerce and in international affairs, and reason to be concerned about the ability of firms to design collusive agreements.

Keywords: Prisoner's dilemma; Endogenous transfer payments; Compensation mechanism; Coase theorem; Coordination games; Equilibrium selection (search for similar items in EconPapers)
Date: 2005-02-06
Note: oai:cdlib1:
View list of references View citations in EconPapers

Downloads: (external link)
http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1189&context=ucsbecon (application/pdf)

Related works:
Journal Article: Endogenous transfers in the Prisoner's Dilemma game: An experimental test of cooperation and coordination (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cdl:ucsbec:01-05

Access Statistics for this paper

More papers in University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().