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Institution formation and cooperation with heterogeneous agents

Sebastian Kube, Sebastian Schaube, Schildberg-Hörisch, Hannah and Elina Khachatryan
Authors registered in the RePEc Author Service: Hannah Schildberg-Hoerisch ()

European Economic Review, 2015, vol. 78, issue C, 248-268

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)
Date: 2015
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