Jan 20, 2016 Filed in: Working papers
With S. Nageeb Ali and Yilin David Yang
Abstract: In a multilateral enforcement regime, a player who cheats on one partner is punished by many partners. But if partners can renegotiate in private, they can subvert the power of the multilateral punishment. We introduce a new notion of "bilateral renegotiation proofness" that applies to multilateral games with private monitoring. For symmetric networked environments, we characterize an optimal bilateral renegotiation proof equilibrium. While players’ ability to renegotiate bilaterally is indeed socially costly, it is perhaps not as costly as one might expect. In densely connected communities, the proportional cost imposed by bilateral renegotiation declines as the number of participants grows, and vanishes in the limit.
Working paper 1/10/2016
Jul 07, 2015 Filed in: Working papers
With S. Nageeb Ali
Conditionally accepted by The American Economic Review
Abstract: Many communities rely upon ostracism to enforce cooperation: if an individual shirks in one relationship, her innocent neighbors share information about her guilt in order to shun her, while continuing to cooperate among themselves. However, a strategic victim may herself prefer to shirk, rather than report others' deviations truthfully. If guilty players are to be permanently ostracized, then such deviations are so tempting that cooperation in any relationship is bounded by what the partners could obtain through bilateral enforcement. We show that ostracism can improve upon bilateral enforcement if it is tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.
Major update: Working paper 7/7/2015
Sep 11, 2011 Filed in: Working papers
With Heidi Gjertsen, Theodore Groves, Eduard Niesten, Dale Squires, and Joel Watson
Abstract: We model conservation agreements using contractual equilibrium, a concept introduced by Miller and Watson (2010) to model dynamic relationships with renegotiation. The setting takes the form of a repeated principal-agent problem, where the principal must pay to observe a noisy signal of the agent's effort. Lacking a strong external enforcement system, the parties rely on self-enforcement for their relational contract. We characterize equilibrium play (including how punishments and rewards are structured) and we show how the parties' relative bargaining powers affect their ability to sustain cooperation over time. We argue that the model captures important features of real conservation agreements and reveals the ingredients required for successful agreements.
Working paper 9/23/2010 (stay tuned for an updated version)
Jul 29, 2011 Filed in: News
Nageeb Ali and I have been awarded a three-year grant from the National Science Foundation Economics Program, entitled “Enforcing Cooperation in Networked Societies.” Stay tuned for our first working paper soon (Update: now available), and lots of great projects to follow after that.
Abstract excerpt: The foundation of economic activity and growth is in the ability of individuals to trust and trade with each other over time. Throughout human history, much of economic activity occurs in realms where formal legal institutions are unwilling or unsuited to enforce cooperative behavior. A growing literature on informal enforcement suggests that the networked pattern of social relationships plays a key role in supporting cooperation: as information about past behavior diffuses through the network, an individual who deviates in a partnership is punished not only by her partner but also by those who come to learn about it. Our research program studies how communities enforce cooperation through their social networks.