Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 883: Credible Communication and Cooperation: Experimental Evidence from Multi-stage Games

Ola Andersson () and Erik Wengström ()
Additional contact information
Ola Andersson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Erik Wengström: Lund University, Postal: and Universityof Copenhagen , Department of Economics, Øster Farimagsgade 5, Building 26, DK-1353, Copenhagen K, Denmark

Abstract: It is well known that communication often serves as a facilitator for cooperation in static games. Yet, communication can serve entirely different purposes in dynamic settings as communication during the game may work as a means for renegotiation, potentially undermining the credibility of cooperative strategies. To explore this issue, this paper experimentally investigates cooperation and non-binding communication in a two-stage game. More specifically, two treatments are considered: one with only pre-play communication and one where subjects can also communicate intra-play between the stages of the game. The results highlight a nontrivial difference concerning the effects of pre-play communication between the two treatments. Pre-play communication only has a significant impact on cooperation when no intra-play communication is possible. The results suggest that the credibility of pre-play messages may depend crucially on future communication opportunities.

Keywords: Communication; Cooperation; Renegotiation; Experiments

JEL-codes: C72; C92

45 pages, September 19, 2011

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