Experimental Economics Lecture Series
Spring 2010
Science of Liberty
Friday, 4:00pm - 5:30pm
A mechanism for assembling properties with diverse ownership: application to the anti-commons problem
Zachary Grossman
University of California-Santa Barbara
Abstract: Assembling individual pieces of land into large parcels for public purposes often involves the use of eminent domain, including when the assembled land is passed into private hands. Questions of equity and efficiency arise. Firstly, the US and other Constitutions require that owners of compulsorily-acquired property receive ‘just’ compensation. As existing owners are likely to value their property higher than the market, a premium is justified: but how much? Secondly, the efficienc
y of a forced change in land-use of the assembly cannot be judged by the usual market tests. The efficiency question is more complicated when the conversion and new use of the land generates significant local spillovers. We propose a mechanism—the ‘Strong Pareto’ or SP auction—which ensures that affected landowners are fairly compensated and, simultaneously, that only efficient project are undertaken. Crucially, the auction design elicits truthful revelation of individual property owners’ reservation prices. Comparison is made with ‘Groves mechanisms’. The SP auction could be used in ‘public-private partnerships’ for urban renewal, toll roads, ports and port-side facilities, in which eminent domain is used, and the private partner is responsible for building, owning and operating, and is motivated by profit.
The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence
Guillaume R. Fréchette
New York University
Abstract: A usual criticism of the theory of infinitely repeated games is that it does not provide sharp predictions since there may be a multiplicity of equilibria. To address this issue we present experimental evidence on the evolution of cooperation in infinitely repeated prisoners&r
squo; dilemma games as subjects gain experience. We find that cooperation decreases with experience when it cannot be supported as an equilibrium outcome. More interestingly, the converse is not necessarily true: cooperation does not always increase with experience when it can be supported as an equilibrium outcome. Nor is a more stringent condition, risk dominance, sufficient for cooperation to arise. However, subjects do learn to cooperate when the payoff to cooperation and the importance of the future is high enough. These results have important implications for the theory of infinitely repeated games. While we show that cooperation may prevail in infinitely repeated games, the conditions under which this occurs are more stringent than the sub-game perfect conditions usually considered.
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