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We experimentally investigate behavior and beliefs in a sequential prisoner's dilemma. Each subject had to choose an action as first mover and a conditional action as second mover. All subjects also had to state their beliefs about others' second-mover choices. Using these elicited beliefs, we apply the transparent Selten–Krischker approach to compare the explanatory power of a few current models of social and moral preferences. We find clear differences in explanatory power between the preference models, both without and with control for the number of free parameters. The best-performing models explain about 80% of the observed behavior. We compare our results with those obtained from a conventional maximum-likelihood approach, and find that the results by and large agree. We also present a structural model of belief formation. We find a consensus bias—whereby subjects believe others behave like themselves—and payoff-salience driven optimism—whereby subjects overestimate the probabilities for favorable outcomes. [ABSTRACT FROM AUTHOR]

We investigate effects of tax reporting institutions on evasion and incidence using an experimental double auction market. We find that 28% of the sellers are truthful when only sellers report, but that 88% and 64% of them are truthful under costless and costly third-party reporting by buyers, respectively. Reporting behavior therefore responds to the intensity of deterrence. However, we find that prices do not fully reflect the lower taxes of the evaders. Thus, when sellers can unilaterally evade taxes, tax incidence deviates from the prediction of the standard model, and there is deadweight loss even if tax revenue is low. Pricing, incidence, and reporting patterns in all treatments are consistent with a model with heterogeneous lying costs, or a combination of lying costs and image concerns that give rise to a motivation to appear honest. [ABSTRACT FROM AUTHOR]

Highlights • We study a duopoly with history-based pricing and switching costs. • The owners delegate pricing to managers with short-term objectives. • Managerial short-termism generates higher profits. • Managerial short-termism softens price competition at the stage when customer relationships are established. Abstract We study a duopoly model of history-based price competition with switching costs and demonstrate how strategic history-based pricing induces the owners of the firms to implement managerial short-termism by delegating the pricing decisions to managers with a discount factor lower than that of the owners. Managerial short-termism is a strategic device whereby owners can soften price competition at the stage when customer relationships are established. The degree of short short-termism is shown to depend on the market structure, the intensity of competition and the magnitude of switching costs. [ABSTRACT FROM AUTHOR]

In this paper, we study a two-party pie-sharing problem in the presence of asymmetries in the stakeholders' private endowments. Both the two stakeholders and third-party arbitrators may influence the outcome. We consider Nash-demand negotiations, where the two stakeholders place demands and share the pie accordingly if demands are compatible, and elicit dictatorial allocations from the stakeholders and the arbitrators. The Nash demands by stakeholders are strategic; the dictatorial allocations by stakeholders and arbitrators are non-strategic. We are interested in the influence of the past arbitrator experience on stakeholder allocations and demands and the past stakeholder experience on third-party arbitration allocations. We find that the ex-arbitrators' stakeholder allocations differ more from the impartial ideal than the stakeholder allocations by those without arbitration experience. In contrast with previous findings, the arbitration outcomes do not depend on the asymmetries in the previous stakeholder roles. [ABSTRACT FROM AUTHOR]

We extend the Ståhl–Rubinstein alternating-offer bargaining procedure to allow players to simultaneously and visibly commit to some share of the pie prior to, and for the duration of, each bargaining round. If commitment costs are small but increasing in the committed share, then the unique subgame perfect equilibrium outcome exhibits a second mover advantage. In particular, as the horizon approaches infinity, and commitment costs approach zero, the unique bargaining outcome corresponds to the reversed Rubinstein outcome ( δ / ( 1 + δ ) , 1 / ( 1 + δ ) ) , where δ is the common discount factor. [ABSTRACT FROM AUTHOR]

Anti-corruption laws forbid selling public job nominations. Even if bribing is ruled out, those interested in the nominations may invest in good relationships with the nominators. This provides a legal way to influence the decision. Such networking is costly, however. Thus, rent-seeking results in excessive networking. We present a simple model featuring such effects and show that efficiency may be improved if political parties interfere with the nominations. Political parties may reduce wasteful networking, thanks to exclusive membership contracts. Parties can require that politicians belonging to the party promote the nomination of other party members, thus, reducing incentives to cultivate inter-party connections. [ABSTRACT FROM AUTHOR]

We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus. [ABSTRACT FROM AUTHOR]

Abstract: Government or company decisions on whom to hire or whom to give a contract are mostly delegated to politicians, public sector officials or human resource and procurement managers. Due to anti-corruption laws, agents cannot sell contracts that they are delegated to decide upon. Even if bribing is ruled out, those interested in the spoils may invest in a good relationship with the deciding agents in order to be remembered when the decision is made. In this paper, we analyze such markets for connections in the presence of convex costs of networking. [Copyright &y& Elsevier]

Abstract: I analyze how informal agreements can be sustained by moral emotions with regard to a large class of two-player games. Specifically, I assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other. A central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes. I complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement. I show that while the optimal agreement in a game with strategic substitutes must compromise on surplus-maximization and efficiency, the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric. [Copyright &y& Elsevier]

In this article, the authors measure experienced guilt in a prisoner's-dilemma experiment with preplay communication. The authors find that feelings of guilt only arise in the case of unilateral defection and that they are stronger when players have mutually agreed to cooperate. The authors also find that fining unilateral defection reduces feelings of guilt. [ABSTRACT FROM AUTHOR]

We conduct experiments in which parties face a pair of two-player pie-splitting procedures. Parties submit their strategy in each, their beliefs about their opponent's choices, and are also asked whether they prefer one procedure over the other. The procedures – a yes-no game, an ultimatum game, and a dictator game – are designed such that by all existing economic preference models, whether distributive or procedural, parties should be indifferent between them. In particular, the procedures should yield the same outcomes, the same expected outcomes and carry the same information on parties' intentions. At the same time, the procedures differ in the way they distribute decision and information rights across players, and also in their complexity and efficiency. Experimentally, parties do indeed still reveal preferences over the procedures at hand. To explore why this happens, we elicit individuals' simplicity and efficiency ratings of the procedures, and also the degree by which individuals invoke the equality of basic rights and liberties in their moral judgement – an ethical criterion not yet captured by any preference model. The preferences we find link to this data. We explore formalizations for such preferences. [ABSTRACT FROM AUTHOR]