Public Good Provision Mechanisms and Reciprocity

Kozlovskaya, Maria and Nicolo, Antonio (2019). Public Good Provision Mechanisms and Reciprocity. Journal of Economic Behavior and Organization ,

Abstract

This paper determines optimal public good provision mechanisms in an environment where agents are motivated by reciprocity. In a two-agent economy, we show that the standard pivot mechanism is not strategy-proof if at least one agent cares strongly enough about reciprocity. Truthful reporting maximises a player's own payoff and hence is viewed as selfish by his opponent, who retaliates by understating demand for the public good. Incentive compatibility is restored if the mechanism is implemented sequentially. When agents are asked to report their demands in turn, a high report by the first mover (he) may result in him paying an unfairly large share of the provision cost, should the second mover (she) understate her demand. Hence, truthful reporting is not judged as selfish by the second mover, who reciprocates by stating her true demand. Our results alert the institutional designer to the importance of game dynamics when agents are non-selfish.

Publication DOI: https://doi.org/10.1016/j.jebo.2019.02.001
Divisions: Aston Business School > Economics, Finance & Entrepreneurship
Aston Business School
Additional Information: © 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords: Mechanism design,Psychological game theory,Reciprocity,Economics and Econometrics,Organizational Behavior and Human Resource Management
Full Text Link:
Related URLs: https://www.sci ... 167268119300319 (Publisher URL)
http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Accepted Date: 2019-02-01
Published Online Date: 2019-02-21
Authors: Kozlovskaya, Maria ( 0000-0002-6882-0377)
Nicolo, Antonio

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Version: Accepted Version

Access Restriction: Restricted to Repository staff only until 21 August 2020.

License: Creative Commons Attribution Non-commercial No Derivatives


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