Free-Rider Problem and Commitment

Hitoshi Matsushima
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Hitoshi Matsushima: University of Tokyo

No CARF-F-556, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This study investigates a free-rider problem caused by externalities inherent in global commons, industrial pollution, and the hidden social costs of everyday activities. Within the range of sovereignty and privacy protection, to transform the social dilemma into an easier-to-solve coordination game format, a method of commitment rule design is adopted wherein each agent declares a scope of actions that they are willing to commit to, and a committee presents the agent with a promise to action within their scope. To ensure the fulfillment of each agent’s promise, a social network is devised that links local trust to address the global problem. This study demonstrates the stepwise commitment rule, which incentivizes all agents to act cooperatively as a unique decent Nash equilibrium, and is sustainable, whereby cooperative relationships can be maintained even if a non-negligible number of agents adhere to uncooperative attitudes.

Pages: 32
Date: 2023-02
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