Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence

The Partnership game
Model
Experimental design
Results
Partnerships, Imperfect Monitoring and Outside Options

Theory and Experimental Evidence
Paolo Crosetto , Alexia Gaudeul and Gerhard Riener#

#
Max Planck Institute of Economics, Jena DICE, Heinrich Heine University, Dsseldorf u
September 14, 2012. ESA Conference Cologne
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Model
Experimental design
Results
The coauthor dilemma

You have a paper with a coauthor Publication depends stochastically on quality (no probability 1 acceptance) Quality depends on eort by you and coauthor Imperfect monitoring: you cannot really track your coauthors eort Both you and your coauthor benet from publication, sunk eort Both you and your coauthor have other papers to work on outside options How much eort should you devote? Is having outside options benecial?
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Model
Experimental design
Results
The Partnership Game

The Public Good Game
Outcome is deterministic, function of sum of contributions Observability of the action of others enables conditional cooperation No option to leave collective project enables punishment strategy
The Partnership Game

Outcome is stochastic, probability of success function of sum of contributions Action of others are not observable, beliefs based on success/failure of project Option to leave collective project enables self-selection and signaling
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Model
Experimental design
Results
Why the partnership game?

More realistic
Research joint ventures Distributed teams, e.g. open source projects Political coalitions Agricultural cooperatives marriages and divorce
Allows exploration of interesting research questions

How do people react to uncertainty re. action of others? How do they form their beliefs? Should we design open or close groups? i.e. should we leave outside options open, and how attractive must they be?
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Model
Experimental design
Results
Some literature
Ongoing debates
Process of enclosures in Tudor England (McCloskey 1972, Turner 1986, Boyer 1993) Collective farms vs. private plots in China (Lin 1990, Dong and Dow 1993, Putterman and Skillman 1992, Dong 1998) Open source software: BSD vs. GPL (e.g. Bezroukov 2011, Montague 2008, Gaudeul 2005)
Eect of outside options

Do they improve eciency? (MacLeod 1993, Orbell and Dawes 1993) Keser and Montmarquette 2009 show this is the case in a deterministic experimental setting based on the PGG.
Eect of uncertainty
Explored in the context of cooperation in the prisoners dilemma (Green and Porter 1984, Fudenberg et al. 1994) Imperfect public information makes grim trigger too grim! (Radner et al. 1986, Abreu et al. 1990) May hamper conditional cooperation (Keser and van Winden 2000, Fischbacher et al. 2001)
Partnerships, Imperfect Monitoring and Outside Options 5 / 22
Model
Experimental design
Results
The model
Baseline treatment with no exit
Two agents, i and j; Decide on how much eort ei , ej to devote to a joint project; The project is successful with probability (ei , ej ), f concave () is normalised so as to never yield certainty of success The project yields payo vk , k = i, j if successful; 0 otherwise Subjects maximise Uk = (ei , ej ) vk ek , k = i, j
Features
Eort is non-observable by the other player (contributes to ) The model allows for symmetric as well as asymmetric players (if vi = vj )
If asymmetric, corner solution for Nash, i.e. only one player contributes.
Interior solution for both the Pareto-optimum and the Nash equilibrium
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Model
Experimental design
Results
Treatments with outside options

We set
ei , ej (0, 10) vi = vj = 20 in symmetric treatment vi = 24, vj = 16 in asymmetric treatment
We allow for dierent payos for the outside option if in No exit Zero Alone Low High
ei +ej 22 ei +ej 22 ei +ej 22 ei +ej 22 ei +ej 22
of exiter (j) 0
ej 22 ej +2 22 ej +4 22
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of stayer (i) ei 22 ei 22 ei 22 ei 22
Model
Experimental design
Results
Outside options
Figure : Success probability functions for dierent treatments

Partnerships, Imperfect Monitoring and Outside Options 8 / 22 Paolo Crosetto , Alexia Gaudeul and Gerhard Riener#
Model
Experimental design
Results
The Model: dynamic structure

Players can exit at anytime Re-entry is free, as is staying (repeated and NOT path-dependent game) One out = both out (disentangling punishment from pure exit eects)
Figure : An example of a between-period timeline

Model
Experimental design
Results
Solution properties
If no exit, usual tragedy of the commons underprovision. Eort in the private project ought to decrease with subsidy (+2 or +4) High type should make eort, low type should not
Threat of exit by high type could force low type to exert eort
Exit options Zero and Alone ought never to be exercised Exit options in the Low and High subsidy treatment would be exercised if belief partner does eort less than 2 (resp. 4)
Will this lead to more eort or more disruption?
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Model
Experimental design
Results
Design
Between subjects Repeated play, indenite duration ( = 0.9) avoid endgame eects Subjects choose:
public or private project, if eligible eort ei (0, 10) not restricted to integers
Elicited beliefs: project choice and eort by other Feedback: Own eort and success/failure of project participated in (+ history) unobservability of ej Whole game is repeated 3 times, perfect strangers matching design to avoid contagion
Figure : Timeline of a11period in thePaolo Crosetto , Alexia Gaudeul and Gerhard Riener# experiment / 22
Model
Experimental design
Results
Controls
Strategic Uncertainty and Risk Aversion (Heinemann et al.) Social Value Orientation (Murphy et al.) Age, gender, trust attitudes Sessions run in Jena, March 2012, N = 316 (32 subjects per treatment)
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Model
Experimental design
Results
Eort and participation in the public project

Symmetric No exit Mean Zero Number of periods Mean Alone Number of periods Mean Low subsidy Number of periods Mean Eort High subsidy Number of periods Mean Eort
Asymmetric Low 4.79 502 of 512 5.11 450 of 512 5.00 349 of 512 5.10 145 of 512 4.34 High 5.68 502 of 512 5.87 450 of 512 6.10 349 of 512 7.05 145 of 512 5.88
5.58 1000 of 1024 5.65 878 of 1024 5.08 602 of 1024 5.40 320 of 1024 6.06
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No eect of exit options on eort.
Model
Experimental design
Results
Eort in the private project

Symmetric Zero Number of periods Mean Alone Number of periods Mean Low subsidy Number of periods Mean Eort High subsidy Number of periods Mean Eort Asymmetric Low High 8 of 512 0.75 29 of 512 7.57 101 of 512 4.36 328 of 512 5.4 2 of 512 0 40 of 512 5.38 130 of 512 6.35 301 of 512 5.73
12 of 1024 1.42 78 of 1024 8.4 327 of 1024 4.38 563 of 1024 4.39
Eort higher than optimal, especially in high subsidy treatment

Model
Experimental design
Results
In, out or in between?

Symmetric
1 1
Asymmetric Exit: 0 2
3 1
Exit: 0 2
3 1
Exit: alone 2
3 1
Exit: alone 2
3 1
Exit: Low 2
3 1 Exit: High 2 3 0 20 40 60 80 100
Exit: Low 2
3 1
Exit: High 2
3 0 20 40 60 80 100
percent
In Public Different In Private
Figure : Composition/ 22 Projects Paolo Phase , Alexia Gaudeul and Gerhard Riener# by Crosetto 15 of
Model
Experimental design
Results
The decision to exit (or to remain)

More likely to exit if beliefs about partners eort decreased last period (which happens if there was a failure). More likely to exit of course in Low and High treatments, but less likely to exit later phases (learning?). At least 70% of the decisions to exit are not justied by beliefs re. eort of the partner. Decision to remain in the public project is more rational, except in case of high subsidy (up to 20% irrational) People do not follow exit in Zero and Alone treatment (rational) They follow more often in Low and High treatment (30 to 40%). However, they should follow more in those treatments given that only 10 to 30% of exiters come back.
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Model
Experimental design
Results
The decision to exit

Symmetric Exit: Zero ...of which irrational Exit: Alone ...of which irrational Exit: Low ...of which irrational Exit: High ...of which irrational 8 of 1024 100% 25 of 1024 92% 23 of 1024 100% 30 of 1024 73% Asymmetric High 5 of 512 2 of 512 100% 100%
Low
16 of 512 100% 11 of 512 73% 18 of 512 83%
16 of 512 100% 26 of 512 88% 13 of 512 92%
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Model
Experimental design
Results
The decision to stay in public

Symmetric Asymmetric High 502 of 512 502 of 512 0% 0%
Low
Public: Zero
...of which irrational Public: Alone ...of which irrational Public: Low ...of which irrational Public: High ...of which irrational
1000 of 1024 0% 878 of 1024 2% 602 of 1024 1% 320 of 1024 11%
450 of 512 2% 349 of 512 7% 145 of 512 20%
450 of 512 8% 349 of 512 4% 145 of 512 20%
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Model
Experimental design
Results
How do beliefs evolve?

Belief fe L.success together type 20 type 24 treat Alone treat Low treat High Phase 2 Phase 3 period in phase RA SU SVO Constant N 0.3133*** Belief re 0.3210*** -0.2960 -0.1716 -0.1520 0.2379 0.5107 -0.2695** -0.3191** -0.0201* -0.0531 -0.0530 0.6594 6.3765*** 4342
-0.2722** -0.3205** -0.0203*
6.1049*** 4342
t statistics in parentheses + p<0.10 , * p<0.05 , ** p<0.01 , *** p<0.001

Model
Experimental design
Results
The determinants of eort in the public project

iv fe belief eort type 20 type 24 treat Alone treat Low treat High Phase 2 Phase 3 Period RA SU SVO IMR Constant N -0.2558+ iv re -0.2312 0.1265 0.8404 -0.2973 0.1574 0.1719 -0.2731*** -0.2991*** -0.0210** -0.2794* 0.0489 1.9524* 7.4156*** 4342 7.0990*** 4342
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iv select OLS 0.8490*** 0.6620+ 1.0857* -0.6188 -1.0784* -1.4245* -1.0106 -0.4756 0.1324 -0.1657* 0.1666** 0.9332 -1.1952*** 2.8451 4003
iv no exit fe 0.0968
iv no exit re 0.1081 0.9619 0.8646
-0.2804*** -0.3062*** -0.0216**
-0.1382 -0.2241+ -0.0226+
-0.1356 -0.2201+ -0.0223 -0.1771 0.1039 -0.6776
5.1154*** 1450
4.8897*** 1450
t statistics in parentheses
Partnerships, Imperfect Monitoring and Outside Options Paolo Crosetto , Alexia Gaudeul and Gerhard Riener#
Model
Experimental design
Results
Welfare
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Model
Experimental design
Results
Conclusion
Higher exit options are highly detrimental to social welfare (corrected for subsidy to exit) because:
Subjects display high levels of aversion to working in teams and therefore exit too often Higher exit options do not encourage eort within the public project Subjects over-invest in their private projects
Subjects do not appear to follow pattern of conditional cooperation

Eort does not depend on belief re. eort of partner. Belief re. eort of partner only inuences decision to exit. Exit is generally nal, i.e. not used for signaling or to sustain high levels of cooperation.
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Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence

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Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence

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The Partnership game