This paper uses a gaming experiment to examine the effect of a two-level game applied to an international environmental conflict situation.

The literature on international environmental economics (as well as the literature in other fields of economics) often uses two basic assumptions: A country is treated as a unitary actor, and the leader of this country simply maximizes the welfare of her constituency. These assumptions abstract from the real world, a world in which a) a country is not as homogenous as the picture of the unitary actor implies, and b) politicians are office- as well as policy-motivated. The first point leads to a two-level game in which a government faces an internal conflict additional to external conflicts. The question remains whether the received results in the literature are sensitive to these two simplifying assumptions.

The international environmental conflict is modeled as a Prisoners’ Dilemma between two groups where each group can either cooperate (which could represent, for example, making pollution abatement expenditures) or not. In two baseline treatments each group consists of three subjects who decide whether to cooperate. In the first treatment the payoff of a subject is independent of the decisions of the other members of the group: Each player is paired with all players of the other group and the average of these three simultaneous games determines the respective payoff for this subject. The second treatment portrays a form of direct democracy in which a decision represents a vote: The payoff for each member in a group is determined by what the majority in this group decides to do (and, of course, by the vote of the other group).

In the third treatment, the voters cannot decide directly whether their group should cooperate with the other group or not. Instead, each group has an additional member, a politician or leader. First, the two leaders make the decision to cooperate on behalf of their groups. Then, the voters decide whether to reelect the leader. If the leader is reelected, she gets an additional payoff. Thus, this design incorporates the idea of two-level games as well as of a politician who derives utility from being in office.