Self-enforcing agreement in cooperative teams: an agent-based modeling approach

Abstract

Abstract Purpose 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 (J Comp Econ 17:504–20, 1993) and Dong and Dow (J Comp Econ 17:472–84, 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. Methods An agent-based model is developed to test the two competing hypotheses in the theory of self-enforcing agreement. The 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. Results Using the agent-based model, we conduct computational experiments for testing the two hypotheses. Estimation on the experiment outputs show that (1) The sustained discount rate is lower in exit-free cooperative teams than exit-restricted ones when shirking members exist, which confirms the argument of Lin (J Comp Econ 17:504–20, 1993), and (2) The sustained discount rate is lower in exit-restricted teams than exit-free ones when members’ leisure preferences are not too diverse and the economics of scale are not too large, or when the sizes of the teams are large enough, which verifies the argument of Dong and Dow (J Comp Econ 17:472–84, 1993). Conclusion 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.