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Inefficient Cooperation under Stochastic and Strategic Uncertainty

Lisa Bruttel (), Werner Güth (), Juri Nithammer () and Andreas Orland ()
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Werner Güth: LUISS Guido Carli, Max Planck Institute for Research on Collective Goods
Juri Nithammer: University of Potsdam

No 20, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: Stochastic uncertainty can cause difficult coordination problems that may hinder mutually beneficial cooperation. We propose a mechanism of ex-post voluntary transfers designed to circumvent these coordination problems and ask whether it can do so. To test this, we implement a controlled laboratory experiment based on a repeatedly played Ultimatum Game with a stochastic endowment. Contrary to our hypothesis, we find that allowing voluntary transfers does not entail an efficiency increase. We suggest and analyze two main reasons for this finding: First, the stochastic uncertainty forces proposers to accept high strategic uncertainty if they intend to cooperate by claiming a low amount (which many proposers do not). Second, many responders behave only incompletely conditionally cooperative by transferring too little (which hinders cooperation in future periods).

Keywords: stochastic uncertainty; strategic uncertainty; cooperation; Ultimatum Game; experiment (search for similar items in EconPapers)
JEL-codes: C78 C92 D74 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-exp, nep-gth and nep-ore
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