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Agreements with reciprocity: Co-financing and MOUs

Journal article
Authors D. Jang
A. Patel
Martin Dufwenberg
Published in Games and Economic Behavior
Volume 111
Pages 85-99
ISSN 0899-8256
Publication year 2018
Published at Department of Economics
Pages 85-99
Language en
Keywords Co-financing agreements, Gentlemen's agreements, MOUs, Public goods, Reciprocity, public-goods, social preferences, prisoners-dilemma, collective action, mechanism design, provision, games, Business & Economics
Subject categories Economics and Business


Institutions for co-financing agreements often exist to encourage public good investment. Can such frameworks deliver maximal investment when agents are motivated by reciprocity? We demonstrate that indeed they can, but not how one might expect. If maximal investment is impossible in the absence of the institution and public good returns are high, then an agreement signed by all parties cannot lead to full investment. However, if all parties reject the agreement, then full investment is attainable via a gentlemen's agreement or memorandum of understanding (MOU). Agreement institutions may thus do more than just facilitate the signing of binding agreements; they may play a critical role in igniting informal cooperation underpinned by reciprocity. (C) 2018 Elsevier Inc. All rights reserved.

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