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Markets and Cooperation

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  • Spagnolo, Giancarlo

    (Dept. of Economics, Stockholm School of Economics)

Abstract

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.

Suggested Citation

  • Spagnolo, Giancarlo, 1998. "Markets and Cooperation," SSE/EFI Working Paper Series in Economics and Finance 257, Stockholm School of Economics, revised 20 Sep 1999.
  • Handle: RePEc:hhs:hastef:0257
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    References listed on IDEAS

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    1. Soderlind, Paul, 2001. "Monetary policy and the Fisher effect," Journal of Policy Modeling, Elsevier, vol. 23(5), pages 491-495, July.
    2. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-239, March.
    3. Currie,David & Levine,Paul, 2009. "Rules, Reputation and Macroeconomic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521104609, March.
    4. Backus, David & Driffill, John, 1986. "The Consistency of Optimal Policy in Stochastic Rational Expectations Models," CEPR Discussion Papers 124, C.E.P.R. Discussion Papers.
    5. Levine, Paul & Currie, David, 1987. "The design of feedback rules in linear stochastic rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 11(1), pages 1-28, March.
    6. Mankiw, N. Gregory (ed.), 1997. "Monetary Policy," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226503097.
    7. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Chapters,in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Spagnolo, Giancarlo & Lippert, Steffen, 2004. "Networks of Relations," SSE/EFI Working Paper Series in Economics and Finance 570, Stockholm School of Economics, revised 04 Jun 2010.

    More about this item

    Keywords

    Cooperation: repeated games; prisoner's dilemma; commons; reciprocal exchange; implicit contracts; collusion; institutions.;

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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