This paper investigates how groups or coalitions of players can act in their collective interest in non-cooperative normal form games even if equilibrium play is not assumed. The main idea is that each member of a coalition will confine play to a subset of their strategies if it is in their mutual interest to do so. An iterative procedure of restrictions is used to define a non-cooperative solution concept, the set of coalitionally rationalizable strategies. The procedure is analogous to iterative deletion of never best response strategies, but operates on implicit agreements by different coalitions. The solution set is a nonempty subset of the rationalizable strategies. I thank Dilip Abreu for support and extremely valuable comments at all stages of

This article investigates stable and efficient networks in the context of risk sharing, when it is costly to establish and maintain relationships that facilitate risk sharing. We find a novel trade-off between efficiency and equality: the most stable efficient networks also generate the most inequality. We then suppose that individuals can be split into groups, assuming that incomes across groups are less correlated than within a group but relationships across groups are more costly to form. The tension between efficiency and equality extends to these correlated income structures. More-central agents have stronger incentives to form across-group links, reaffirming the efficiency benefits of having highly central agents. Our results are robust to many extensions. In general, endogenously formed networks in the risk-sharing context tend to exhibit highly asymmetric structures, which can lead to stark inequalities in consumption levels.

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This paper provides empirical evidence of the influence of adolescent marriage opportunities on female schooling attainment and gives predictions of the impact of imposing universal age-of-consent laws. Using data from rural Bangladesh, we explore the commonly cited hypotheses that women attain less schooling as a result of marrying young. We isolate the causal effect of marriage timing by exploiting variation in the timing of menarche as an instrumental variable for age of first marriage. Our results indicate that marriage age matters: Each additional year that marriage is delayed is associated with 0.30 additional years of schooling and 6.5% higher probability of literacy. Delayed marriage is also associated with a significant increase in use of preventive health care services, some of which appears to be independent of the change in schooling, indicating separate “age effects” of delaying marriage. In the context of competitive marriage markets we show that the above results can be used to obtain estimates of the change in equilibrium female education that would arise from introducing a minimum legal age of marriage. The resulting analysis implies that, under reasonable assumptions, enforcing universal age of consent laws would have a strong positive impact on female schooling.

We develop a model in which connections between individuals serve as social collateral to enforce informal insurance payments. We show that: (i) The degree of insurance is governed by the expansiveness of the network, measured with the per capita number of connections that groups have with the rest of the community. “Two-dimensional” networks—like real-world networks in Peruvian villages—are sufficiently expansive to allow very good risk-sharing. (ii) In second-best arrangements, insurance is local: agents fully share shocks within, but imperfectly between endogenously emerging risk-sharing groups. We also discuss how endogenous social collateral affects our results.

This comment corrects two results in the 2006 Econometrica paper by Amador, Werning, and Angeletos (AWA), that features a model in which individuals face a trade-off between flexibility and commitment. First, in contrast to Proposition 1 in AWA, we show that money-burning can be part of the ex ante optimal contract when there are two states. Second, in contrast to Proposition 2 in AWA, we show that money-burning can be imposed at the top (in the highest liquidity shock state), even when there is a continuum of states. We provide corrected versions of the above results. [PUBLICATION ABSTRACT]

This paper experimentally investigates the effects of a costly punishment option on cooperation and social welfare in long, finitely repeated public good contribution games. In a perfect monitoring environment, increasing the severity of the potential punishment monotonically increases average net payoffs. In a more realistic imperfect monitoring environment, we find a U-shaped relationship. Access to a standard punishment technology in this setting significantly decreases net payoffs, even in the long run. Access to a severe punishment technology leads to roughly the same payoffs as with no punishment option, as the benefits of increased cooperation offset the social costs of punishing.

This article considers the effect of contracting limitations in risk-sharing networks, arising for example from observability, verifiability, complexity, or cultural constraints. We derive necessary and sufficient conditions for Pareto efficiency under these constraints in a general setting, and we provide an explicit characterization of Pareto efficient bilateral transfer profiles under CARA utility and normally distributed endowments. Our model predicts that network centrality is positively correlated with consumption volatility, as more central agents become quasi-insurance providers to more peripheral agents. The proposed framework has important implications for the empirical specification of risk-sharing tests, allowing for local risk-sharing groups that overlap within the village network.

We explain trends in dowry levels in Bangladesh by drawing attention to an institutional feature of marriage contracts previously ignored in the literature: mehr or traditional Islamic bride-price. We develop a model of marriage contracts in which mehr serves as a barrier to husbands exiting marriage and a component of dowry as an amount that ex ante compensates the groom for the cost of mehr. We investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce, and show that our model gives a different set of predictions than traditional models. We show that major changes in dowry levels took place precisely after the legal changes, corresponding to simultaneous changes in levels of mehr.

How do geographically concentrated income shocks influence the long-run spatial distribution of poverty within a city? We examine the impact on housing prices of a cholera epidemic in one neighborhood of nineteenth century London. Ten years after the epidemic, housing prices are significantly lower just inside the catchment area of the water pump that transmitted the disease. Moreover, differences in housing prices persist over the following 160 years. We make sense of these patterns by building a model of a rental market with frictions in which poor tenants exert a negative externality on their neighbors. This showcases how a locally concentrated income shock can persistently change the tenant composition of a block.