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Cooperation and Self-Governance in Heterogeneous Communities

  • Juan Escobar

    ()

    (Department of Economics, Stanford University)

This 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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File URL: http://www-siepr.stanford.edu/repec/sip/07-038.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-038.

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Date of creation: Mar 2008
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Handle: RePEc:sip:dpaper:07-038
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  1. Matthew Haag & Roger Lagunoff, 2002. "On the Size and Structure of Group Cooperation," Wallis Working Papers WP33, University of Rochester - Wallis Institute of Political Economy.
  2. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
  3. Levin, Jonathan, 2001. "Information and the Market for Lemons," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 657-66, Winter.
  4. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  5. DANIEL B. KLElN, 1992. "Promise Keeping In The Great Society: A Model Of Credit Information Sharing," Economics and Politics, Wiley Blackwell, vol. 4(2), pages 117-136, 07.
  6. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, MIT Press, vol. 124(3), pages 1307-1361, August.
  7. Echenique, Federico & Sabarwal, Tarun, 2003. "Strong comparative statics of equilibria," Games and Economic Behavior, Elsevier, vol. 42(2), pages 307-314, February.
  8. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
  9. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 139-154, March.
  10. Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development 64, Boston University, Institute for Economic Development.
  11. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
  12. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  13. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
  14. Robert M. Hunt, 2002. "What's in the file? The economics and law of consumer credit bureaus," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 17-25.
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