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Self-Commitment-Institutions and Cooperation in Overlapping Generations Games

Francesco Lancia and Alessia Russo ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. 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 efficiency. 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 find that, even if individual strategies are still characterized by behavioral uncertainty, the introduction of SCI relaxes the inclination toward opportunistic behavior and sustains higher efficiency compared to social norms without SCI. We quantify the value of SCI and investigate the role of memory with different 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 30
Date: 2011-09
New Economics Papers: this item is included in nep-edu, nep-lab, nep-mig and nep-ure
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