Strategic Ethics: Altruism without the Other-regarding Confound

In a two-stage investment-effort game, we model altruistic investment in another agent's capacity to benefit from synergies between the two agents' efforts. Contrary to most models in the literature on altruism, we assume that agents who invest in others have no direct utility from their giving behavior, ruling out any genuinely altruistic component in their utility function, i.e., stemming from other-regarding preferences. Furthermore, we disentangle this strategic ethics" from reputational e ects yielding incentives for a more pro-social action in the present in order to favor Pareto-superior outcomes in the future. Isolated consumption of one's own bene ts from own efforts is the worst equilibrium, which is globally stable and is shown to exist independently of the investment cost. However, for a low enough investment cost, there exist two alternative equilibria: an unstable intermediate equilibrium in which both agents make positive complementarity-building investments, and a stable one in which both agents invest all they can to complementarity building. Both equilibria Pareto-dominate the aforementioned no-investment equilibrium. Results of a laboratory experiment con rm our behavioral prediction that, for a low enough investment cost, subjects coordinate on positive complementarity-building investment, which in turn boosts their effort in the second stage. The latter increases in both own and others' complementarity-building investment, as predicted by our model. All this holds independently of subjects' risk and inequity aversion. The latter suggests that complementarity-building investment is not motivated by altruism. Rather, it is purely strategic.