Why do money and markets crowd out cooperative relations? This paper characterizes the effects of intertemporal preferences, money, and markets on players' ability to cooperate in material-payoff supergames. Players' aversion to intertemporal substitution facilitates cooperation by decreasing their evaluation of short-run gains from deviations and increasing that of losses from punishments. Goods' markets and money may hinder cooperation by allowing players to reallocate short-run gains from deviations in time, at some cost. Allowing for free intertemporal reallocation of payoffs, perfect financial markets always make cooperation harder. Financial markets' imperfections facilitate cooperation by opposing this effect.
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Length: 20 pages Date of creation: 10 Sep 1998 Date of revision:
30 Nov 1998 Handle: RePEc:hhs:hastef:0257
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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Steffen Lippert & Giancarlo Spagnolo, 2004.
"Networks of Relations,"
Discussion Papers
28, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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