Cooperation When Surrounded by Exploiters: The Role of Outside Options

Cooperation is widespread, even when vulnerable to defection. The canonical explanation is that it can arise in repeated interactions between patient agents. Yet in random matching settings, where the population includes many impatient exploiters and types are unobserved, even patient agents fail to cooperate. We show that when an outside option — which makes participation voluntary — is available, cooperation becomes possible even if the fraction of patient agents is arbitrarily small. This result extends to other models of cooperation vulnerable to exploitation, including those based on differences in morality or productivity. It applies across a range of contexts, including cross-country variation in cooperation and self-employment, law enforcement effectiveness, and the potential co-evolution of patience and cooperation.