Investing to Cooperate:Theory and Experiment
Investment, Experiments, Repeated games, Property rights
We study theoretically and in a lab-experiment investment decisions in environments where property rights are absent. In our setting a player chooses an investment level before interacting repeatedly with a given set of agents. The investment stochastically affects the payoffs of the game in every subsequent period. We show that investments with less volatile returns are more likely to be observed since they facilitate cooperation. We also show that the investor might be forced to invest more than he would in an environment with legal protection, to keep other players cooperative. Experimental results are broadly consistent with the theoretical findings.