Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter October 9, 2018

Sustaining Cooperation Through Strategic Self-Interested Actions

  • Francesco Lancia and Alessia Russo EMAIL logo

Abstract

This paper studies how organizations seek to promote cooperation between their members when individual contributions to an organization’s output are imperfectly observable. It considers an overlapping-generations game in which members with conflicting interests expend effort in pursuing activities outside the organization, in addition to the effort they devote to increasing the organization’s output. We show that cooperation is easier to enforce when organizations link rewards and punishments to effort in outside activities. In the best public perfect equilibrium, effort in outside activities is distorted in order to signal a member’s willingness to cooperate inside the organization.

JEL Classification: C73; D62; M54

Acknowledgements

We thank the Editor Yuk-Fai Fong and two referees, as well as Alberto Bennardo, Daniel Garcia, Bård Harstad, David K. Levine, Anirban Mitra, Nicola Pavoni, Nicola Persico, Debraj Ray, Karl Schlag, Paolo Siconolfi, and Timothy Worrall for helpful suggestions. We also benefitted from comments made by participants in the 2nd Personnel Economics and Public Finance conference in Ravello, the 11th SAET meeting in Faro, the 17th ISNIE conference in Firenze, and the seminars at the EIEF and the universities of Amsterdam, Bergen, Bologna, Firenze, Innsbruck, Modena, Napoli, Oslo, and Vienna. We also acknowledge the support of an EIEF research grant and the European Research Council under the EU’s 7th Framework Programme, ERC GA no. 283236.

References

Abreu, D. 1988. “On the Theory of Infinitely Repeated Games with Discounting.” Econometrica 56: 383–396.10.2307/1911077Search in Google Scholar

Abreu, D., D. Pearce, and E. Stacchetti. 1986. “Optimal Cartel Equilibria with Imperfect Monitoring.” Journal of Economic Theory 39 (1): 251–269.10.1016/0022-0531(86)90028-1Search in Google Scholar

Abreu, D., Pearce, D., and E. Stacchetti. 1990. “Toward a Theory of Discounted Repeated Games with Imperfect Monitoring.” Econometrica 58 (5): 1041–1063.10.2307/2938299Search in Google Scholar

Acemoglu, D., and J. Pischke. 1999. “Beyond Becker: Training in Imperfect Labour Markets.” Economic Journal 109: 112–142.10.1111/1468-0297.00405Search in Google Scholar

Baron, D. P. 2010. “Morally-Motivated Self-Regulation.” American Economic Review 100 (4): 1299–1329.10.1257/aer.100.4.1299Search in Google Scholar

Benoit, J. P., and V. Krishna. 1987. “Dynamic Duopoly: Prices and Quantities.” Review of Economic Studies 54 (1): 23–36.10.2307/2297443Search in Google Scholar

Cremer, J. 1986. “Cooperation in Ongoing Organizations.” Quarterly Journal of Economics 101 (1): 33–49.10.2307/1884640Search in Google Scholar

Dixit, A. 1980. “The Role of Investment in Entry-Deterrence.” Economic Journal 90 (357): 95–107.10.2307/2231658Search in Google Scholar

Fudenberg, D., and J. Tirole. 1984. “The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look. American Economic Review 74 (2): 361–366.Search in Google Scholar

Fudenberg, D., and J. Tirole. 1991. Game Theory. Cambridge, MA: MIT Press.Search in Google Scholar

Green, E., and R., Porter. 1984. “Noncooperative Collusion under Imperfect Price Information.” Econometrica 52 (1): 87–100.10.2307/1911462Search in Google Scholar

Halac, M. 2015. “Investing in a Relationship.” RAND Journal of Economics 46 (1): 165–185.10.1111/1756-2171.12080Search in Google Scholar

Hammond, P. 1975. “Charity: Altruism or Cooperative Egoism.” In Altruism, Morality, and Economic Theory, edited by E. Phelps. New York: Russell Sage Foundation.Search in Google Scholar

Harstad, B., F. Lancia, and A. Russo. 2018. Compliance Technology and Self-Enforcing Agreements, working paper, University of Oslo.10.2139/ssrn.2934401Search in Google Scholar

Kandori, M. 1992. “Repeated Games Played by Overlapping Generations of Players.” Review of Economic Studies 59 (1): 81–92.10.2307/2297926Search in Google Scholar

Kreps, D. 1996. “Corporate Culture and Economic Theory.” In Firms, Organizations and Contracts: A Reader in Industrial Organization, edited by P. J. Buckley, and J. Michie. Oxford: Oxford University Press.Search in Google Scholar

Levin, J. 2003. “Relational Incentive Contracts.” American Economic Review 93: 835–857.10.1257/000282803322157115Search in Google Scholar

Mailath, G., and L. Samuelson. 2006. Repeated Games and Reputations. Oxford: Oxford University Press.10.1093/acprof:oso/9780195300796.001.0001Search in Google Scholar

Ramey, G., and J. Watson. 1997. “Contractual Fragility, Job Destruction, and Business Cycles.” Quarterly Journal of Economics 112 (3): 873–911.10.1162/003355397555370Search in Google Scholar

Shepsle, K., and B. Nalebuff. 1990. “The Commitment to Seniority in Self-Governing Groups.” Journal of Law, Economics, & Organization 6: 45–72.10.1093/jleo/6.special_issue.45Search in Google Scholar

Spence, A. M. 1977. “Entry, Capacity, Investment and Oligopolistic Pricing.” Bell Journal of Economics 8 (2): 534–544.10.2307/3003302Search in Google Scholar

Published Online: 2018-10-09

© 2019 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 28.3.2024 from https://www.degruyter.com/document/doi/10.1515/bejte-2017-0157/html
Scroll to top button