On Equilibrium Payments for Cooperation and Their Social Preferences∗
نویسنده
چکیده
This paper considers the performance of a compensation mechanism that has received increasing attention in recent experimental literature. Our purpose is two-fold: (i) to characterize endogenous payments that can induce (mutual) cooperation in prisoner’s dilemma in the absence of social preferences; (ii) using models of quasi-maximin and inequality-aversion preferences to evaluate the possibility and likelihood of cooperation in relation to the characteristics of the endogenous payments qualified for inducing cooperation. We establish conditions that are necessary and sufficient for endogenous payments to be qualified for inducing cooperation. We show that both quasi-maximin and inequality-aversion preferences imply that qualified payments that narrow the gap in the mutual-cooperation (material) payoffs are more effective than those that expand the gap. This is consistent with findings in two recent experimental tests of the performance of the compensation mechanism.
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