Feb 22, 2016 Filed in: Publications
With S. Nageeb Ali
Accepted for publication in The American Economic Review
Abstract: Many communities rely upon ostracism to enforce cooperation: if an individual shirks in one relationship, her innocent neighbors share information about her guilt in order to shun her, while continuing to cooperate among themselves. However, a strategic victim may herself prefer to shirk, rather than report others' deviations truthfully. If guilty players are to be permanently ostracized, then such deviations are so tempting that cooperation in any relationship is bounded by what the partners could obtain through bilateral enforcement. Ostracism can improve upon bilateral enforcement if tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.
Working paper version 2/8/2016