Masahiro Okuno-Fujiwara (Faculty of Economics, University of Tokyo) Takako Fujiwara-Greve (Department of Economics, Keio University) Nobue Suzuki (Department of Economics, Komazawa University)
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Unlike the ordinary repeated games, in the real world, people can run away after cheating. In this paper we construct a social game, in which players can repeat Prisoners' Dilemma only if both players agree to continue the partnership. We investigate how a social sanction prevents moral hazard in such a voluntary relationship. We have three conclusions. First, it is possible to enforce voluntary long-term cooperation by trust-building. Second, the trust-building periods can be shortened under diverse strategy distributions. Third, if there is a reference letter system which conveys information that a partnership ended by an unavoidable cause, then the trust-building periods can be shortened as well.
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE J-Series with number
CIRJE-J-172.