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Co-Financing Agreements and Reciprocity: When 'No Deal' is a Good Deal

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  • Dooseok Jang
  • Amrish Patel
  • Martin Dufwenberg

Abstract

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 in the way 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 co-financing agreement, then an informal deal to invest can lead to full investment. Agreement institutions may thus do more than just facilitate the signing of formal agreements; they may play a critical role in igniting informal cooperation underpinned by reciprocity.

Suggested Citation

  • Dooseok Jang & Amrish Patel & Martin Dufwenberg, 2016. "Co-Financing Agreements and Reciprocity: When 'No Deal' is a Good Deal," CESifo Working Paper Series 6213, CESifo.
    • Handle: RePEc:ces:ceswps:_6213
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    References listed on IDEAS

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    Cited by:

    1. Jorge Valido, 2020. "Large Infrastructure Investments: Financing Mechanisms and Incentives in Decentralised Countries," Fiscal Studies, John Wiley & Sons, vol. 41(4), pages 905-921, December.

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    More about this item

    Keywords

    co-financing agreements; informal agreements; public goods; reciprocity;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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