Conditional Cooperation With Negative Externalities – An Experiment

TLDR: In this paper, the authors show that harm on outsiders significantly reduces conditional cooperation of insiders, with guilt being most pronounced if the active insiders not only inflict harm on the outsider but increase their own payoff at the expense of the outsider.

Abstract: Empirically, the commons are not as tragic as standard theory predicts. The predominant explanation for this finding is conditional cooperation. Yet many real life situations involve insiders, who are directly affected by a dilemma, and outsiders, who may be harmed if the insiders overcome the dilemma. The quintessential illustration is oligopoly. If insiders overcome their dilemma and collude, this inflicts harm on the opposite market side. In our experiment, harm on outsiders significantly reduces conditional cooperation of insiders. We can exclude that this result is driven by inequity aversion, reciprocity or efficiency seeking. Only guilt aversion can rationalize our findings, with guilt being most pronounced if the active insiders not only inflict harm on the outsider, but increase their own payoff at the expense of the outsider.

Figures

Table 4 Explaining Choices in Individual Externalities Problems with Switching Point in Dictator Game

Figure 1 Degree of Defection in the Baseline

Table 6 Comparing Baseline with Individual Externalities Problems, Controlling for Beliefs

Table 5 Comparing Baseline with Individual Externalities Problems, Controlling for Switching Point in Dictator Game

Figure 4 Beliefs

Figure 3 Dictator Game Variant

Full text

Engel, Christoph; Zhurakhovska, Lilia
Working Paper
Harm on an innocent outsider as a lubricant of
cooperation: An experiment
Preprints of the Max Planck Institute for Research on Collective Goods, No. 2012,02
Provided in Cooperation with:
Max Planck Institute for Research on Collective Goods
Suggested Citation: Engel, Christoph; Zhurakhovska, Lilia (2012) : Harm on an innocent
outsider as a lubricant of cooperation: An experiment, Preprints of the Max Planck Institute for
Research on Collective Goods, No. 2012,02, Max Planck Institute for Research on Collective
Goods, Bonn
This Version is available at:
http://hdl.handle.net/10419/57477
Standard-Nutzungsbedingungen:
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen
Zwecken und zum Privatgebrauch gespeichert und kopiert werden.
Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle
Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich
machen, vertreiben oder anderweitig nutzen.
Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen
(insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten,
gelten abweichend von diesen Nutzungsbedingungen die in der dort
genannten Lizenz gewährten Nutzungsrechte.
Terms of use:
Documents in EconStor may be saved and copied for your
personal and scholarly purposes.
You are not to copy documents for public or commercial
purposes, to exhibit the documents publicly, to make them
publicly available on the internet, or to distribute or otherwise
use the documents in public.
If the documents have been made available under an Open
Content Licence (especially Creative Commons Licences), you
may exercise further usage rights as specified in the indicated
licence.

MAX PLANCK SOCIETY
Preprints of the
Max Planck Institute for
Research on Collective Goods
Bonn 2012/2
Harm on an Innocent
Outsider as a Lubricant
of Cooperation
An Experiment
Christoph Engel
Lilia Zhurakhovska

Preprints of the
Max Planck Institute
for Research on Collective Goods Bonn 2012/2
Harm on an Innocent Outsider as a Lubricant
of Cooperation
An Experiment
Christoph Engel / Lilia Zhurakhovska
February 2012
Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, D-53113 Bonn
http://www.coll.mpg.de

1
Harm on an Innocent Outsider as a Lubricant of Cooperation
An Experiment
Christoph Engel
*
/ Lilia Zhurakhovska
**
Abstract
If two players of a simultaneous symmetric one-shot prisoner’s dilemma hold standard prefer-
ences, the fact that choosing the cooperative move imposes harm on a passive outsider is imma-
terial. Yet if participants hold social preferences, one might think that they are reticent to impose
harm on the outsider. This is not what we find, however severe the externality. A within-subjects
measure of reticence to impose harm does not explain cooperation. But the externality makes
participants more pessimistic. However conditional on their beliefs participants are more, not
less cooperative if cooperation entails harm on an outsider, again however severe the externality.
JEL: C72, C91, D03, H23
Keywords: Prisoner’s Dilemma, Externality, Modified Dictator Game, Beliefs
*
Max Planck Institute for Research on Collective Goods, corresponding author: engel@coll.mpg.de
**
Max Planck Institute for Research on Collective Goods, zhurakhovska@coll.mpg.de

2
1. Introduction
At Sunday school moral rules are clear. Morally, imposing harm on an innocent outsider is bad.
Reproach is even stronger if the harm does not correspond to a direct benefit for insiders. Such
action is not even selfish; it is purely spiteful. Now what if imposing harm does not benefit in-
siders individually, but rather benefits them jointly? This is the case if insiders face a dilemma,
and if they impose harm on a bystander whenever at least one of them cooperates. In such a situ-
ation, the moral balance becomes more complicated. Resisting the temptation to exploit one’s
counterpart is usually regarded as unselfish and thereby morally desirable. But if the price for
being social with an insider is harm on an outsider, the actor faces a choice between two morally
condemned acts: selfishness and spite. Yet if spite is indeed worse than selfishness, and if at least
some actors are guided by (these) moral principles, knowing that cooperation inflicts harm on a
bystander should reduce cooperation.
Now the world is not Sunday school. But student subjects are usually expected to be rather social
when they participate in lab experiments. After all, not more than a few dollars are at stake, and
one would hope that, in terms of morality, students are a rather positive selection. When testing
the power of the morally grounded reticence to impose harm on an innocent outsider in a lab ex-
periment, we were therefore very surprised that widespread moral intuitions get it wrong. We
tested participants on a one-shot symmetric prisoner’s dilemma. In the treatment, insiders impose
harm on a third, passive participant whenever at least one of them cooperates. Using the strategy
method, we vary the degree of harm. However severe the harm, we do not find a significant dif-
ference between the baseline and the treatment.
The results are even more striking if we control for beliefs. As one would expect given the wide-
spread moral norm against harming innocent victims, insiders are more skeptical about the coop-
erativeness of other insiders if cooperation imposes harm on the victim. Yet conditional on their
more skeptical beliefs, they cooperate significantly more, however severe the harm. Knowing
that a bystander will suffer is a lubricant of cooperation.
In fact, this result carries a second surprise. If both players of a symmetric one-shot prisoner’s
dilemma game hold standard preferences, both players defecting prescribes the unique equilibri-
um. As has been shown long ago, to a remarkable degree this prediction is violated in the lab
(see already Rapoport and Chammah 1965). Some people just cooperate because of altruism, but
most of the cooperation can be explained by conditional cooperation (Fischbacher, Gächter et al.
2001; Fischbacher and Gächter 2010). People cooperate because they deem it quite likely that
other participants will cooperate as well. This explanation implies that the more participants are
optimistic about cooperativeness, the more they are likely to cooperate; in turn, the more they are
pessimistic, the less likely they are to cooperate. The very implication is violated in our data. Our
participants are less optimistic about the cooperativeness of others in the presence of harm on
outsiders, but surprisingly, conditional on their beliefs, they cooperate even more than in the
baseline. Apparently, beliefs about cooperativeness are not the only condition that determines
cooperative behavior. Our data suggests that conditional cooperators are also motivated by the

Frequently asked questions

Q1. What are the contributions in "Harm on an innocent outsider as a lubricant of cooperation: an experiment" ?

Fischbacher et al. this paper found that participants are more, not less, cooperative if cooperation entails harm on an outsider, however severe the externality. 

Q2. What is the effect of the actor defecting while the other cooperates?

If one defects while the other cooperates, the defecting one is8strongly favored in comparison with both other players, while the cooperating one has a payoff of 0€, and the inactive player incurs a loss of –h€. 

Q3. How many independent observations were collected in the Externalities treatment?

The authors collected 48 independent observations in both treatments; in the Externalities treatment, the authors also invited 24 inactive players, randomly assigned to be the potential targets of externalities. 

Q4. What is the effect of externality on the outsider?

the authors find:Result 4: If cooperation in a simultaneous two-person prisoner’s dilemma entails a negative externality on an outsider, beliefs about cooperativeness and the decision to cooperate are negatively correlated. 

Q5. What is the effect of regressing choices in prisoner’s dilemma problems?

If the authors regress choices in individual prisoner’s dilemma problems, using logit models with a constant and heteroskedasticity-robust standard error, on the switching point in the dictator game, the regressor is weakly significant for the first problem, and insignificant for all remaining problems (Appendix Table 4). 

Q6. What is the reason why people cooperate?

Some people just cooperate because of altruism, but most of the cooperation can be explained by conditional cooperation (Fischbacher, Gächter et al.