The Self-Enforcing Agreement in Cooperative Teams: An Agent-Based Modelling Approach

24 Pages Posted: 9 Sep 2015 Last revised: 28 Aug 2016

See all articles by Hang Xiong

Hang Xiong

ETH Zurich; King's College London

Stephen Kinsella

University of Limerick

Diane Payne

UCD School of Sociology, Dynamics Lab,

Date Written: April 25, 2013

Abstract

We present an agent-based model to test two competing hypotheses in the theory of self-enforcing agreement. In cooperative teams (such as agricultural cooperatives), self-enforcing agreement plays a critical role in guaranteeing members’ work incentives when the monitoring from a third party is absent. In order to provide an effective sanction to the violators so as to maintain the agreement, two seemingly conflicting strategies are proposed. One is allowing the members to exit the team freely. The other is imposing a high exit cost to restrict members from leaving the team. The arguments behind each strategy are elaborated in Lin (1993) and Dong and Dow (1993), respectively. However, these strategies have never been tested in the same model. In fact, no formal model is presented for one of the arguments. To fill this gap, we develop a model that incorporates the two arguments as two scenarios in a shared framework. Our model takes heterogeneity of team members (e.g., their laziness, work ability and patience to future well-being) into consideration, which allows us to better understand the divergence of these two arguments. We find the two arguments essentially claim different consequences under different conditions of members’ characteristics and team size. Our study demonstrates agent-based simulation can be an effective approach of testing game theoretical arguments and exploring game theoretical ideas.

Keywords: Self-enforcing Agreements, Exit Rights, Exit Costs, Agent-Based Model

JEL Classification: C7, D1, Q1

Suggested Citation

Xiong, Hang and Kinsella, Stephen and Payne, Diane, The Self-Enforcing Agreement in Cooperative Teams: An Agent-Based Modelling Approach (April 25, 2013). Available at SSRN: https://ssrn.com/abstract=2621606 or http://dx.doi.org/10.2139/ssrn.2621606

Hang Xiong (Contact Author)

ETH Zurich ( email )

Sonneggstrasse 33
Zurich, 8092
Switzerland

HOME PAGE: http://hangxiong.net

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Stephen Kinsella

University of Limerick ( email )

Limerick
Ireland
+35361233611 (Phone)
+35361330316 (Fax)

HOME PAGE: http://stephenkinsella.net

Diane Payne

UCD School of Sociology, Dynamics Lab, ( email )

UCD Geary Institute of Public Policy
University College Dublin, Belfield Campus,
Dublin, Dublin 4
Ireland
++35317168561 (Phone)

HOME PAGE: http://dl.ucd.ie

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