At-will relationships: How an option to walk away affects cooperation and efficiency

Alistair Wilson and Hong Wu

Games and Economic Behavior, 2017, vol. 102, issue C, 487-507

Abstract: We theoretically and experimentally examine the effects from adding a simple, empirically relevant action to a repeated partnership, the option to walk away. Manipulating both the value of the outside option, and its relative distribution among the partners, we examine the behavior of human subjects in a repeated prisoners' dilemma. In particular, we examine the degree of cooperation and the form of punishments used. Our findings indicate that cooperation rates are broadly unaffected by the value of the common outside option, but that the selection of supporting punishments—in-relationship defections or walking-away—are dictated by individual rationality. In contrast to the symmetric results, when outside options for partners are asymmetric we find stark selection effects over cooperation, with the potential for very high and very low efficiency, dependent on the precise division rule.

Keywords: Outside options; Endogenous termination; Dissolution clauses; Imperfect public monitoring; Dynamic games (search for similar items in EconPapers)
JEL-codes: C73 C92 D03 D86 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:102:y:2017:i:c:p:487-507

DOI: 10.1016/j.geb.2017.02.007

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