Markets and Cooperation

Giancarlo Spagnolo

No 257, Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: Why do money and markets crowd out cooperative relations? This paper characterizes the effects of intertemporal preferences, money, and markets on players' ability to cooperate in material-payoff supergames. Players' aversion to intertemporal substitution facilitates cooperation by decreasing their evaluation of short-run gains from deviations and increasing that of losses from punishments. Goods' markets and money may hinder cooperation by allowing players to reallocate short-run gains from deviations in time, at some cost. Allowing for free intertemporal reallocation of payoffs, perfect financial markets always make cooperation harder. Financial markets' imperfections facilitate cooperation by opposing this effect.

Keywords: Cooperation: repeated games; prisoner's dilemma; commons; reciprocal exchange; implicit contracts; collusion; institutions. (search for similar items in EconPapers)
JEL-codes: C72 D51 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-mic
Date: 1998-09-10, Revised 1999-09-20
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