We study cooperative behaviour in communities where the flow of information regarding past conduct is limited or missing. Players are initially randomly matched with no knowledge of each other's past actions; they endogenously decide whether or not to continue the repeated relationship. There is incomplete information regarding player types: a subset of the population is myopic, while the remainder have discount factors that permit cooperation, in principle. We define social equilibrium in such communities. Such equilibria are characterized by an initial testing phase, followed by cooperation if the test is successful. It is precisely the presence of myopic types that permit cooperation, by raising barriers to entry into new relationships. We examine the implications of increased patience, which takes two forms: an increase in the number of non-myopic types, and an increase in the discount factor of non-myopic types. These two notions turn out to have strikingly different implications for the degree of cooperation that can be sustained.
ASJC Scopus subject areas
- Economics and Econometrics