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The Formation of Cooperative Relationships

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  • Kranton, Rachel E

Abstract

This article investigates how individuals forge and maintain cooperative relationships when there is always the possibility of starting again with a new partner. The analysis shows that an ever-present opportunity to form new relationships need not destroy cooperation. Simple strategies achieve the (constrained) optimal level of cooperation. These strategies involve a "bond" in the form of reduced utility at the beginning of a relationship. Two newly matched agents may have an incentive to forgo paying this bond, given that everyone else in the population requires payment of a bond to start a new relationship. This incentive disappears, however, if there is enough initial uncertainty about a new partner's valuation of future utility. Accounts from the sociological and anthropological literature indicate that individuals may indeed pay bonds to form cooperative relationships. Copyright 1996 by Oxford University Press.

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Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

Volume (Year): 12 (1996)
Issue (Month): 1 (April)
Pages: 214-33

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Handle: RePEc:oup:jleorg:v:12:y:1996:i:1:p:214-33

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