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On The Economic Value of Repeated Interactions Under Adverse Selection

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  • Lorenzo Rocco

    (Università di Padova)

  • Ottorino Chillem

    (Università di Padova)

Abstract

The paper studies, in a repeated interaction setting, how the presence of cooperative agents in a heterogeneous community organized in groups affects efficiency and group stability. The paper expands on existing literature by assuming that each type can profitably mimic other types. It is shown that such enlargement of profitable options prevents group stabilization in the single group case. Stabilization can be obtained with many groups, but its driver is not the efficiency gain due to the presence of cooperative individuals. Rather, stabilization is the result of free riding opportunities.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.73.

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Date of creation: May 2006
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Handle: RePEc:fem:femwpa:2006.73

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Keywords: Adverse Selection; Group Stability; Altruism;

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  1. Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development 64, Boston University, Institute for Economic Development.
  2. Rauch, James E. & Watson, Joel, 2003. "Starting small in an unfamiliar environment," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 1021-1042, September.
  3. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 214-33, April.
  4. Sen, Amartya, 1985. "Goals, Commitment, and Identity," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(2), pages 341-55, Fall.
  5. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
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