Cooperation and distributive conflict

If either property rights or institutions are weak, agents who create wealth by cooperating will later have an incentive to fight over the distribution of it. In this paper we investigate theoretically and experimentally the circumstances under which welfare losses from investment in distributional contests destroy welfare gains from voluntary cooperation. We find that in situations, where the return to cooperation is high, subjects cooperate strongly and welfare exceeds the predicted non-cooperation levels. If returns to cooperation are low, then subjects still cooperate, but the resources wasted in the distributional conflict lead to lower welfare than if subjects had followed the theoretical prediction of not cooperating. •