lecture 7

Question 1

the cooperation dilemma

Answer 1

Team members face a prisoners dilemma: They are better off when everyone cooperates, but they may lack incentives to do so individually

Question 2

Coopetition

Answer 2

cooperation to create value but competition over appropriation of that value

Costly efforts to create value vs costly actions to appropriate value

Question 3

A way to think about the scope of cooperation:

Answer 3

2x2 grid

Competing for joint value & cooperation (yes,yes) Busy purgatory (competing: for the high value, coopetition)

Competing for joint value & cooperation (yes,no): Hell (competition for low value)

Competing for joint value & cooperation (no,no): Quiet purgatory (being lazy and trusting in a fair distribution of low value)

Competing for joint value & cooperation (no,yes): Heaven (fair distribution of high value)

Question 4

cooperation

Answer 4

social interaction among self-interested members that should act cooperatively… but are tempted to act selfishly

Question 5

Prisoners dilemma in the context of different ways to look at cooperation

Answer 5

Do members cooperate: no –> hell
Yes –> heaven

Question 6

Four assumptions about teams

Answer 6

Teams are composed of identical self-interested members that can interact repeatedly over time and that can benefit from a private value and a joint value

The private and the joint value increase with the overall effort exerted by the team members and the joint value is divided based on members value appropriation actions

Members efforts and actions are mutually observable ex post but non contractible ex ante, and at each stage they are chosen independently and simultaneously

Members begin interacting by being fully cooperative and then they imitate forever the behavior of defectors

Question 7

In hell/purgatory

Answer 7

members become lazier and less/less competitive with team size

Question 8

In heaven:

Answer 8

the optimal effort increases with team size

The greater value created by means of cooperation incentivizes the members to be (increasingly) more aggressive when competing for value

Avoiding competition is relatively more valuable in small groups. guaranteeing optimal contributions is relatively more important in large groups

Question 9

The “trigger grim equivalent retaliation” strategy

Answer 9

shirking: triggers inefficient efforts in the future rounds

Fooling (appropriating the total joint value) the other triggers inefficient rent-seeking actions

Shirking & fooling: triggers a fall from heaven to eternal hell