Ostracism

With S. Nageeb Ali

Abstract: Many communities rely upon ostracism to improve cooperation in bilateral relationships: if an individual deviates in one relationship, other innocent players come to learn about this deviation, and proceed to shun the guilty player while continuing to cooperate with each other. Typically, it is assumed that information spreads through word-of-mouth communication and that victims and third-parties have no incentive to lie about their experience with guilty players. We show, perhaps surprisingly, that innocent players may not have the incentive to communicate truthfully. Communication incentives are particularly severe in equilibria in which guilty players are permanently ostracized: such equilibria cannot support cooperation significantly beyond what each pair of players could obtain without community enforcement altogether. The challenge is that a victim of cheating prefers to cheat herself rather than to report her victimization to others. However, ostracism equilibria that feature forgiveness can foster truthful communication and thereby improve upon permanent ostracism. Our results suggest a new perspective on forgiveness and redemption in social norms.

Working paper 6/14/2013

Enforcing cooperation in networked societies

With S. Nageeb Ali

Abstract: Which social norms and networks maximize cooperation in bilateral relationships? We study a network of players in which each link is a repeated bilateral partnership with two-sided moral hazard. The obstacle to community enforcement is that each player observes the behavior of her partners in their partnerships with her, but not how they behave in other partnerships. We introduce a new metric for the rate at which information diffuses in a network, which we call viscosity, and show that it provides an operational measure for how conducive a network is to cooperation. We prove that clique networks have the lowest viscosity and that the optimal equilibrium of the clique generates more cooperation and higher average utility than any other equilibrium of any other network. This result offers a strategic foundation for the perspective that tightly knit groups foster the most cooperation. We apply this framework to analyze favor exchange arrangements, decentralized trade in networked markets, and social collateral.

Working paper 10/31/2012

A contract-theoretic model of conservation agreements

With Heidi Gjertsen, Theodore Groves, Eduard Niesten, Dale Squires, and Joel Watson

Abstract: We model conservation agreements using contractual equilibrium, a concept introduced by Miller and Watson (2010) to model dynamic relationships with renegotiation. The setting takes the form of a repeated principal-agent problem, where the principal must pay to observe a noisy signal of the agent's effort. Lacking a strong external enforcement system, the parties rely on self-enforcement for their relational contract. We characterize equilibrium play (including how punishments and rewards are structured) and we show how the parties' relative bargaining powers affect their ability to sustain cooperation over time. We argue that the model captures important features of real conservation agreements and reveals the ingredients required for successful agreements.

Working paper 9/23/2010 (stay tuned for an updated version)

Attainable payoffs in repeated games with interdependent private information

Note: Satoru Takahashi discovered an error in a previous version of this paper. I am working on figuring out how to correct it. For now, I am posting a shorter version that contains only the correct results. Please do not cite, circulate, or refer to any version of the paper dated prior to 2009.

Abstract: This paper proves folk theorems for repeated games with private information, communication, and monetary transfers, in which signal spaces may be arbitrary, signals may be statistically interdependent, and payoffs for each player may depend on the signals of other players.

Working paper 1/13/2009