Essays on the Economics of Social Dilemmas

Abstract

The purpose of this dissertation is to study specific cases of all those aforementioned questions in a number of different settings, all of which share one common characteristic of particular economic relevance. The settings that will be studied all involve a two-ways interaction of an individual with the group of his peers. More specifically, the essays in this thesis are concerned with a problem classified in the literature under the umbrella term of, “Social Dilemma” (Olson 1965, Kollock, 1998). A social dilemma is any strategic situation (in the game-theoric sense of the term) in which there is a conflict between individual and collective interest. To be more precise, the defining characteristics of a social dilemma situation is that everyone collectively is better off if everyone cooperates towards a specific action, but each one individually is better off defecting, regardless of the actions of others. The famous “Prisoner’s Dilemma” (Rappoport and Chammah, 1965) is a classical example showcasing the conflict of interest. The reason why social dilemmas are interesting from an economist’s perspective, is because this conflict of interest is at the heart of many issues of economic importance, such as labor productivity, public finance, crime and environmental policy among others. Understanding the drivers of individual behavior, as well as the interaction of individuals within a group, and identifying problematic points to these interactions is the key to the design of the appropriate policies, and this thesis aims to contribute towards that goal. Two distinct cases of social dilemma, represented mathematically as two seminal games, are studied. These two cases are a standard public good game augmented by the presence of a mechanism for the enforcement of cooperation, and a social learning game, where information can only be communicated among the individuals of the group through their actions. As explained before, what connects these two games, is the interdependence of actions and payoffs of their players, as well as the misalignment between individual, and collective best, creating a classical problem of externalities. These two cases are formally defined, their respective equilibria and other features are identified, and potential welfare-improving mechanism are discussed. An additional common element of these two studies, that constitutes another point of contribution of this body of work, is that I study the role of mechanisms that do not solely rely on the provision of extrinsic (monetary) incentives, as it is the standard approach of the economic literature. In the public good game case, I model the role of endogenous norms that reinforce cooperation among agents and how it interacts with the presence of a punishment mechanism for defectors. In the case of the social learning game, the mechanism to address the inefficiencies that I shall demonstrate, is one that relies on the strategic disclosure of available information, instead of a provision of payoff-relevant incentives to implement the socially optimal behavior. Finally, this thesis which is primarily involved with theoretical analysis of social dilemma problems, is supplemented with a laboratory experiment on social learning, aimed at both testing empirically the propositions of the theoretical work, and other hypotheses that remain ambiguous in the literature.