The paper analyzes the role of the structure of communication – i.e. who is talking with whom – on the choice of messages, on their credibility and on actual play. We run an experiment in a three-player coordination game with Pareto ranked equilibria, where a pair of agents has a profitable joint deviation from the Pareto-dominant equilibrium. According to our analysis of credibility, the subjects should communicate and play the Pareto optimal equilibrium only when communication is public. When pairs of agents exchange messages privately, the players should play the Pareto dominated equilibrium and disregard communication. The experimental data conform to our predictions: the agents reach the Pareto-dominant equilibrium only when announcing to play it is credible. When private communication is allowed, lying is prevalent, and players converge to the Pareto-dominated equilibrium. Nevertheless, at the individual level, players’ beliefs and choices tend to react to messages even when these are non-credible.
|Keywords:||cheap talk, coordination, coalitions, experiment|
|JEL:||C72 C91 D03 D83|
The Endogenous Formation of Coalitions to Provide Public Goods: Theory and Experimental Evidence
By: David M. McEvoy (Department of Economics, Appalachian State University)
Todd L. Cherry (Department of Economics, Appalachian State University)
John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst)
This paper examines the endogenous formation of coalitions that provide public goods in which players implement a minimum participation requirement before deciding whether to join. We demonstrate theoretically that payoff-maximizing players will vote to implement efficient participation requirements and these coalitions will form. However, we also demonstrate that if some players are averse to inequality they can cause inefficient outcomes. Inequality-averse players can limit free riding by implementing larger than efficient coalitions or by blocking efficient coalitions from forming. We test the theory with experimental methods and observe individual behavior and coalition formation consistent with a model of inequality-averse players.
Keywords: public goods, coalition formation, inequality aversion, participation requirement, experiments