Group consumption,free-riding,and informal reciprocity agreements

We examine conditions under which group consumption is likely to involve informal reciprocity agreements rather than a price system. Our model shows that reciprocity agreements are used when transactions costs are high, the good is inexpensive, demand is inelastic, the group continues to interact over time, the consumers are patient, the time between interactions is short, and the group is small and homogeneous. Further, the results suggest that reciprocity agreements are likely to involve goods that are consumed along with other group benefits, such as companionship. We use the model to analyze overlapping social networks and investments in social capital.     

Economic Progress,Social Regress?

A central issue in the debate regarding the relevance of social capital is whether the decline in social embeddedness that has attended modernization over the last 40 years in the United States is as harmful as Putnam, among others, claim it to be. Critics of Putnam's thesis argue that various arms‐length institutions fulfil the roles performed by social capital thereby mitigating the negative impact of its recent decline. We develop a framework that provides insight into when such institutions may be adequate and when they might not. We find that if market (economic) and non‐market (social) interactions differ in their payoffs but are interlinked through the modernization of the economy, the optimal level of modernization in market interactions will be higher than that in non‐market interactions. Further, market supporting institutions are likely to increase the divergence between economic and social interactions since analogs for market institutions that constrain opportunistic behavior are usually nonexistent in social contexts. In this sense, economic progress may be accompanied by social regress.     

Correlated Equilibrium,Conformity, and Stereotyping in Social Groups

We argue that a social norm and the coordination of behavior within social groups can be expressed by a correlated equilibrium. Given a social group structure (a partition of individuals into social groups), we propose four conditions that one may expect of a correlated equilibrium consistent with social norms. These are: (1) within‐group anonymity (conformity within groups), (2) group independence (no conformity between groups), (3) homophily (individuals in the same group have similar attributes), and (4) predictable group behavior (ex post stability). We demonstrate that correlated equilibrium satisfying (1)–(3) exist very generally and equilibrium satisfying (1)–(4) exist in games with many players. We also consider stereotyped beliefs—beliefs that all individuals in a social group can be expected to behave in the same way—and show that stereotyping is not costly to the person who stereotypes but may or may not be beneficial to society.     

Business Cycles, Heuristic Expectation Formation, and Contracyclical Policies

We develop a simple Keynesian‐type business cycle model in which agents use simple heuristics to predict national income. To be precise, the agents either form (destabilizing) extrapolative expectations or (stabilizing) regressive expectations, a decision which depends on the rules forecasting performance in the recent past. As it turns out, an unending evolutionary competition between the rules may generate endogenous complex business cycles. We also explore the effectiveness of some common governmental intervention strategies. Our model suggests that policy makers may be able to stabilize output fluctuations, yet due to system immanent nonlinearities this may prove to be quite difficult.     

A group selection perspective on economic behavior, institutions and organizations

This article examines the role of group dynamics and interactions in explaining economic behavior and the evolution of institutions. Our starting point is the large literature on group selection in the biological, behavioral and social sciences. We present a range of interpretations of group selection, describe a complete set of group selection mechanisms, and discuss the empirical and experimental evidence for group selection. Unique features of cultural group selection are investigated, and opportunities for applying the latter to various areas of economic theory and economic policy are identified.     

Trait perceptions influence economic out-group bias: lab and field evidence from Vietnam

Group favoritism is typically directed toward in-group members and against out-group members, but these cross-group effects often vary. Little is known about why group effects on economic choices vary. We use a survey method developed in social psychology to measure stereotyped attitudes of one group toward another. These attitudes are then associated with prosociality in five experimental games (also using an unusual amount of individual-level sociodemographic control). We present evidence from an artificial field experiment of a majority group with high status (Vietnamese) exhibiting no disfavoritism toward a lower-status out-group (Khmer) and typical disfavoritism to a second out-group (Chinese). Both Vietnamese and Chinese groups see the Khmer as warm but incompetent, attitudes which seem to activate empathy rather than contempt. The results suggest that measuring between-group stereotype attitudes can be used to predict the sign of cross-group favoritism in other natural settings.     

Who to punish? Individual decisions and majority rule in mitigating the free rider problem

We study a voluntary contributions mechanism in which punishment may be allowed, depending on subjects’ voted rules. We found that out of 160 group votes, even when groups had no prior experience with unrestricted punishment, no group ever voted to allow unrestricted punishment and no group ever allowed punishment of high contributors. Over a series of votes and periods of learning we found a distinct reluctance to allow any punishment at the beginning, with a gradual but clear evolution toward allowing punishment of low contributors. And groups allowing punishment of only low contributors achieved levels of cooperation and efficiency that are among the highest in the literature on social dilemmas.     

The role of identity and authority from anarchy to order: Insights from modeling the trajectory of dueling in Europe

The economics literature usually assumes order in terms of a Weberian state with monopoly over the means of violence. In this paper, we study historical situations in which such an order is absent and violent conflict namely duel of honor is an institution. Anarchy or the absence of state rules in managing violence does not imply the absence of private rules and arrangements (such as codes of dueling). Our focus is on the possible ways that a Weberian order can emerge from anarchy. We endeavor to capture this transition by introducing a computational model in which a simulated agent represents a social individual who considers both economic and political factors and interacts with other individuals as well as institutions to make a decision. We then use the trajectory of dueling in England, France, and Germany to validate our approach. The paper demonstrates how a complex, aggregative historical process over three centuries may be consistently explained on the basis of rational choices among heterogeneous agents conditioned by their group identity and State authority.     

Reputation,Social Identity and Social Conflict

We interpret the psychology literature on social identity and examine its implications. We model a population of agents from two exogenous and well defined social groups. Agents are randomly matched to play a reduced‐form bargaining game. We show that this struggle for resources drives a conflict through the rational destruction of surplus. We assume that the population contains both rational players and behavioral players. Behavioral players aggressively discriminate against members of the other social group. The existence and specification of the behavioral player is motivated by the social identity literature. For rational players, group membership has no payoff‐relevant consequences. We show that rational players can contribute to the conflict by aggressively discriminating and that this behavior is consistent with existing empirical evidence. Our paper relates to the empirical literature which finds that social heterogeneity tends to be increasing in economic variables which we interpret as indicating inefficiency. We provide an explanation that, as social groups compete for surplus, disagreement and inefficiency can result. Our work also relates to the social conflict literature, which examines the relationship between macro level factors such as unemployment and civil disturbances. This literature finds that the amount of social conflict tends to be increasing in the inequitability of the environment.     

Social norms in repeated public good games

The paper explores the relationship between an individual’s preference for cooperation and the establishment of cooperative norms. Our aim is to provide an experimental test of the hypothesis (Fehr and Gachter, 2002) according to which the individuals’ willingness to punish defectors in social dilemma games favours the establishment of a common rule of behaviour leading to increased levels of cooperation. We conduct two experiments in which individuals decide both whether to participate in a common project and the institutional rules determining how the profits of the project were to be shared among the participants in the group. Our main question is to analyse whether high contributors react to free riding behaviour by adopting punitive sanctions. We also interview our subjects in order to elicit their opinions on civic values and free riding behaviour. Our results partly contradict the initial hypothesis; however, with reference to the institutional choices, we find that individual ethics may play an important role.     

An axiomatic theory of political representation

We discuss the theory of gerrymandering-proof voting rules. Our approach is axiomatic. We show that, for votes over a binary set of alternatives, any rule that is unanimous, anonymous, and gerrymandering-proof must decide a social outcome as a function of the proportions of agents voting for each alternative, and must either be independent of this proportion, or be in one-to-one correspondence with the proportions. In an extended model in which the outcome of a vote at the district level can be a composition of a governing body (with two possible parties), we discuss the quasi-proportional rules (characterized by unanimity, anonymity, gerrymandering-proofness, strict monotonicity, and continuity). We show that we can always (pointwise) approximate a single-member district quota rule with a quasi-proportional rule. We also discuss a more general environment, where there may be more than two parties.     

Monetary Policy Committees: Individual and Collective Reputations

This paper looks at the incentives of individual members of a monetary policy committee to gain a reputation for inflationary toughness. I show a policy maker can have more or less incentive to build a reputation when part of a group. But, group policy making leads to higher expected social welfare. Not publishing individuals' votes, raises the temptation to inflate and lowers expected social welfare. If the culture or rules of a central bank puts more weight on senior policy makers, the incentive to build a reputation is greater, but expected social welfare may be higher or lower.     

Testing Social Preferences for an Economic “Bad”: An Artefactual Field Experiment*

We test for social preferences over a commodity in an artefactual field experiment using the random price voting mechanism. Subjects are university staff members, and the commodity is water “contaminated” by a sterilized cockroach. Our results suggest that social preferences exist with respect to commodities and “bads”, supporting a more general utility framework for social preferences. Our empirical test allows for the coexistence of three social‐preference models; our results support the models of Fehr and Schmidt (1999) and Charness and Rabin (2002), but not the model of Bolton and Ockenfels (2000). Also, we find that incorporating social preferences improves the efficiency of majority‐rules voting.     

Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records

We show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms. We develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs. We present evidence supporting three predictions of this model by analyzing bunching at kinks using Danish tax records. First, larger kinks generate larger taxable income elasticities. Second, kinks that apply to a larger group of workers generate larger elasticities. Third, the distribution of job offers is tailored to match workers' aggregate tax preferences in equilibrium. Our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods.     

Group identification with (incomplete) preferences

We consider the problem of identifying members of a group based on individual opinions. Since agents do not have preferences in the model, properties of rules that concern preferences (e.g., strategy‐proofness and efficiency) have not been studied in the literature. We fill this gap by working with a class of incomplete preferences derived directly from opinions. Our main result characterizes a new family of group identification rules, called voting‐by‐equitable‐committees rules, using two well‐known properties: strategy‐proofness and equal treatment of equals. Our family contains as a special case the consent rules (Samet & Schmeidler. J. Econ. Theory, 110 (2003), pp. 213–233), which are symmetric and embody various degrees of liberalism and democracy; and it also includes dictatorial and oligarchic rules that value agents’ opinions differently. In the presence of strategy‐proofness, efficiency turns out to be equivalent to non‐degeneracy (i.e., any agent may potentially be included or excluded from the group). This implies that a rule satisfies strategy‐proofness, efficiency, and equal treatment of equals if, and only if, it is a non‐degenerate voting‐by‐equitable‐committees rule.     

Business cycle in an oligopolistic economy with entry and exit

In this paper we introduce a microfounded macromodel with endogenous market structure, where macroeconomic fluctuations may be determined by firms’ strategic interactions, entry and exit. All the agents have the same preferences but may differ in their budget constraints and change their social status according to idiosyncratic stochastic shocks that trigger entry, while exit is caused by firms’ bankruptcies. Our numerical simulations show that birth and death of firms (associated with entry and exit) can generate macroeconomic fluctuations without technology shocks.     

Group membership,team preferences,and expectations

Group membership is a powerful determinant of social behaviour in a variety of experimental games. Its effect may be channelled primarily via the beliefs of group members, or directly change their social preferences. We report an experiment with a prisoner's dilemma with multiple actions, in which we manipulate players’ beliefs and show that group identity has a consistent positive effect on cooperation only when there is common knowledge of group affiliation. We also test the robustness of the minimal group effect using three different manipulations: one manipulation fails to induce group identity, and we observe an unsystematic effect of group membership when knowledge of affiliation is asymmetric.     

Risk preference interactions between individual farmers and small farmer groups: Experimental evidence from rural Ethiopia

The understanding of risk preference interactions among poor farmers in developing countries has important policy implications, as many programs that aim to alleviate poverty and address risk constraints are provided on a collective basis. We conduct a randomized field experiment in the drought-prone parts of Northern Ethiopia and elicit from poor, vulnerable farmers their hypothetical willingness to pay using individual and group lottery games. Analyzing the certainty equivalent ratios (CERs), we find that farmer groups are more risk averse than individual farmers. When the risk of the lottery is high, the group CER is primarily determined by the most-risk-averse farmer of the group, and to a lesser extent, by the least. The median farmer contributes to the group CER only when the lottery risk is moderate. After participating in the group elicitation, individual farmers also become as risk averse as the group on average. Specifically, the median and the least-risk-averse farmers become significantly more risk averse while the most-risk-averse farmer is unaffected. Our results show that policymakers should carefully consider how social interactions in rural communities affect individual and group risk preference and whether social interactions also affect the participation and effectiveness of development programs.     

CSR and financial performance: complementarity between environmental,social and business behaviours

This article analyses the interactions between various dimensions of corporate social responsibility (CSR) that mediate the relationship between CSR and financial performance. We hypothesize that the absence of consensus in the empirical literature on the CSR–financial performance relationship may be explained by the existence of synergies (complementarity) and trade-offs (substitutability) between the different CSR components. We investigate such relationship using a final unbalanced panel sample of 1094 observations (around 300 firms per year) from 15 countries over the 2002–2007 period. Our results show that responsible behaviours towards employees (human resources dimension) and towards customers and suppliers (business behaviour dimension) appear as complementary inputs of financial performance, indicating mutual benefits and less conflict between those stakeholders. Conversely, responsible behaviours towards customers and suppliers and towards the environment appear as substitutable inputs of financial performance, suggesting more conflict between or over-investment towards those stakeholders.     

Trust and reciprocity in inter-individual versus inter-group interactions: The effects of social influence, group dynamics, and perspective biases

Using an experimental trust game, I examine whether the perspectives and behavior of group representatives and consensus groups differ from those of the same individuals in an analogous inter-individual situation. A primary goal of this research is to extend past work on trust and reciprocity by examining the impact of the social contexts within which social interactions are characteristically embedded. Specifically, this research concerns whether norms and dynamics of trust and reciprocity differ in the contexts of inter-individual and inter-group interactions. First, I examine whether dynamics of trust and reciprocity differ in various inter-group interactions where inter-group decisions are operationalized as 1) autonomous group representatives, i.e., individuals who are given the responsibility of unilaterally making a decision on behalf of a three-person group engaging with a group representative of another such group; and 2) consensus groups, i.e., group members making a consensus trust or reciprocity decision for their groups via a collective process with another such group. Results of these studies show that 1) people trust less and reciprocate less when responsible for a group or organizational decision as autonomous group representatives; 2) consensus groups do not differ from individuals in their level of trust but show dramatically less reciprocity. The group consensus mechanism in fact produced by far the lowest reciprocity level, significantly lower than that exhibited by either individuals or autonomous group representatives. Thus, inter-group trust and reciprocity dynamics are not readily inferable from their inter-individual counterparts. Moreover, an important implication is emerging here: the extent and direction of the discrepancy between individual and group choices in regard to trust and reciprocity levels and possibly other social preferences in general may depend importantly on the precise details of the group decision-making mechanism, for example whether decisions are made consensually, by majority vote, or by a group leader or representative. In addition to examining the level of trust and reciprocity that occur in these various situations, I also studied, using both behavioral and questionnaire data, the roles of self-interest, social influence, and group dynamics in trust and reciprocity perceptions and behavior. The results showed that there exist discrepancies between behavioral forecasts and the actual behavior, and that trusting behavior is driven strongly by expectation of level of reciprocation, while reciprocating behavior is driven strongly by the difference between trust expectation and actual trust received.