Jul 07, 2015 Filed in: Working papers
With S. Nageeb Ali
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. We show that ostracism can improve upon bilateral enforcement if it is tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.
Major update: Working paper 7/7/2015