Cooperation and Self-Governance in Heterogeneous Communities
AbstractThis paper theoretically studies the consequences of heterogeneity on self-governance, cooperation, and trust in large communities. I consider a game model where players belong to a large population and are randomly matched. Players interact with each other infrequently and, when matched, play a prisoners’ dilemma. There exists an institution that can convey information on play histories. Players’ payoff functions differ, so that some players have a higher tendency towards cooperation. This constitutes the main modeling innovation of this work and makes the model a mixed adverse selection-moral hazard model. A suitable equilibrium concept is introduced and characterized. Some novel comparative statics results are obtained, showing, in sharp contrast with previous papers, that more heterogeneous societies may sustain more cooperation. Private enforcement mechanisms are explored, showing conditions under which private for profit intermediation leads to Pareto optimal cooperation. We discuss the implications of my results for applied work and show how the disclosure of credit histories impacts the defection rates of credit relations.
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Bibliographic InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-038.
Date of creation: Mar 2008
Date of revision:
Large communities; cooperation; heterogeneity; social capital; trust; reputation;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian
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