Self-Commitment-Institutions and Cooperation in Overlapping Generations Games

This paper focuses on a two-period OLG economy with public imperfect observability over the
intergenerational cooperative dimension. Individual endowment is at free disposal and perfectly observable. In this environment we study how a new mechanism, we call Self-Commitment-Institution
(SCI), outperforms personal and community enforcement in achieving higher ex-ante e¢ciency. Social norms with and without SCI are characterized. If social norms with SCI are implemented, agents
might freely dispose of their endowment. As long as they reduce their marginal gain from deviation
in terms of current utility, they also credibly self-commit on intergenerational cooperation. Under
quite general conditions we find that, even if individual strategies are still characterized by behavioral uncertainty, the introduction of SCI relaxes the inclination toward opportunistic behavior and
sustains higher e¢ciency compared to social norms without SCI. We quantify the value of SCI and
investigate the role of memory with di§erent social norms. Finally, applications on intergenerational
public good games and transfer games with productive SCI are provided.