Conditional cooperation with negative externalities – An experiment

Christoph Engel and Lilia Zhurakhovska

Journal of Economic Behavior & Organization, 2014, vol. 108, issue C, 252-260

Abstract: Empirically, the commons are not as tragic as standard theory predicts. The predominant explanation for this finding is conditional cooperation. Yet many real life situations involve insiders, who are directly affected by a dilemma, and outsiders, who may be harmed if the insiders overcome the dilemma. The quintessential illustration is oligopoly. If insiders overcome their dilemma and collude, this inflicts harm on the opposite market side. In our experiment, harm on outsiders significantly reduces conditional cooperation of insiders. We can exclude that this result is driven by inequity aversion, reciprocity or efficiency seeking. Only guilt aversion can rationalize our findings, with guilt being most pronounced if the active insiders not only inflict harm on the outsider, but increase their own payoff at the expense of the outsider.

Keywords: Conditional cooperation; Negative externalities; Prisoner's dilemma; Beliefs; Guilt aversion (search for similar items in EconPapers)
JEL-codes: C90 D01 D03 D62 D63 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:108:y:2014:i:c:p:252-260

DOI: 10.1016/j.jebo.2014.10.005

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