Self-Commitment-Institutions and Cooperation in Overlapping Generations Games

Francesco Lancia and Alessia Russo ()

Department of Economics from University of Modena and Reggio E., Faculty of Economics "Marco Biagi"

Abstract: This paper focuses on a two-period OLG economy with public imperfect observability over the intergenerational cooperative dimension. Individual endowment is at free disposal and perfectly observable. In this environment we study how a new mechanism, we call Self-Commitment-Institution (SCI), outperforms personal and community enforcement in achieving higher ex-ante e¢ ciency. Social norms with and without SCI are characterized. If social norms with SCI are implemented, agents might freely dispose of their endowment. As long as they reduce their marginal gain from deviation in terms of current utility, they also credibly self-commit on intergenerational cooperation. Under quite general conditions we .nd that, even if individual strategies are still characterized by behavioral uncertainty, the introduction of SCI relaxes the inclination toward opportunistic behavior and sustains higher e¢ ciency compared to social norms without SCI. We quantify the value of SCI and investigate the role of memory with di¤erent social norms. Finally, applications on intergenerational public good games and transfer games with productive SCI are provided

Keywords: Cooperation; Free disposal; Imperfect public monitoring; Memory; Overlapping generation game; Self-Commitment Institution (search for similar items in EconPapers)
JEL-codes: C70 D70 H40 (search for similar items in EconPapers)
Pages: pages 32
Date: 2011-11
New Economics Papers: this item is included in nep-dge, nep-evo, nep-gth, nep-mic and nep-soc
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Working Paper: Self-Commitment-Institutions and Cooperation in Overlapping Generations Games (2011)
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