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Investing to Cooperate: Theory and Experiment



Type:   Working paper
Titre:   Investing to Cooperate: Theory and Experiment
Auteur(s):   Benoît, Jean-Pierre - London Business School (LBS) (Auteur)
Galbiati, Roberto (1977-...) - Département d'économie (Auteur)
Henry, Emeric (1976-...) - Département d'économie (Auteur)
Date de publication:   2014-05
Mots-clés:   [en] Investment, Experiments, Repeated Games, Property Rights
JEL:   C72,  C73,  C91,  C92
Résumé:   [en] We study theoretically and in a lab-experiment how legal protection affects the level and type of investments in a setting where a player chooses an investment level before interacting repeatedly with the same set of agents. The investment stochastically affects the payoffs of the game in every subsequent period. We show that without legal protection: investments will be made since repeated interactions can serve as a substitute for legal enforcement; investments with less volatile returns are more likely; the investor might be forced to invest more to keep other players cooperative. Experimental results are broadly consistent with the theoretical findings.


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