This paper studies the conditions that improve bargaining power using threats and promises. We develop a model of strategic communication, based on the conflict game with perfect information, in which a noisy commitment message is sent by a better-informed sender to a receiver who takes an action that determines the welfare of both. Our model captures different levels of aligned-preferences, for which classical games such as stag hunt, hawk-dove, and prisoner’s dilemma are particular cases. We characterise the Bayesian perfect equilibrium with nonbinding messages under truth-telling beliefs and sender’s bargaining power assumptions. Through our equilibrium selection we show that the less conflict the game has, the more informative the equilibrium signal is and less credibility is necessary to implement it.

Any trust situation involves a certain amount of risk for trustors that trustees could abuse. In some cases, intermediaries exist who play a crucial role in the exchange by providing reputational information. To examine under what conditions intermediary opinion could have a positive impact on cooperation, we designed two experiments based on a modified version of the investment game where intermediaries rated the behaviour of trustees under various incentive schemes and different role structures. We found that intermediaries can increase trust if there is room for indirect reciprocity between the involved parties. We also found that the effect of monetary incentives and social norms cannot be clearly separable in these situations. If properly designed, monetary incentives for intermediaries can have a positive effect. On the one hand, when intermediary rewards are aligned with the trustor’s interest, investments and returns tend to increase. On the other hand, fixed monetary incentives perform less than any other incentive schemes and endogenous social norms in ensuring trust and fairness. These findings should make us reconsider the mantra of incentivization of social and public conventional policy.

This paper addresses the paradox of voter turnout, wherein observed voting participation rates are far greater than what rational choice theory would predict. Voters face multiple voting choices, stochastic voting costs, and candidates offering different economic platforms. A combination of two approaches attempts to resolve this paradox: quantal response equilibrium (QRE) analysis, which introduces noise into the decision-making process, and the possibility of ethical (altruism-motivated) voting. A series of laboratory experiments empirically tests the predictions of the resulting model. Participants in the experiments are also given opportunities for communicating online with their immediate neighbors, in order to enhance the chances that subjects would realize the possibility of ethical voting. The results show that ethical voting occurs but gains momentum only in the presence of a vocal advocate and even then it mostly dissipated by the second half of the session. The QRE-based model was able to explain some but not all of the overvoting that was observed, relative to the Nash equilibrium prediction. There is evidence to suggest that communication via the chat feature generated some of the voting and also some of the ethical voting.

By using data from a voluntary contribution mechanism experiment with heterogeneous endowments and asymmetric information, we estimate a quantal response equilibrium (QRE) model to assess the relative importance of efficiency concerns versus noise in accounting for subjects overcontribution in public good games. In the benchmark specification, homogeneous agents, overcontribution is mainly explained by error and noise in behavior. Results change when we consider a more general QRE specification with cross-subject heterogeneity in concerns for (group) efficiency. In this case, we find that the majority of the subjects make contributions that are compatible with the hypothesis of preference for (group) efficiency. A likelihood-ratio test confirms the superiority of the more general specification of the QRE model over alternative specifications.

We study the effect of competition on income distribution by means of a two-stage experiment. Heterogeneous endowments are earned in a contest, followed by a surplus-sharing task. The experimental test confirms our initial hypothesis that the existence of a middle class is as effective as institutional hurdles in limiting the power of the less able in order to protect the more able players from being expropriated. Furthermore, majoritarian voting with a middle class involves fewer bargaining impasses than granting veto rights to the more able players and, therefore, is more efficient.