Preplay contracting in the Prisoners' Dilemma

We consider a modified Prisoners' Dilemma game in which each agent can offe r to pay the other agent to cooperate. The subgame perfect equilibrium of t his two-stage game is Pareto efficient. We examine experimentally whether s ubjects actually manage to achieve this efficient outcome. We find an encou raging level of support for the mechanism, but also find some evidence that subjects' tastes for cooperation and equity may have significant interacti ons with the incentives provided by the mechanism.