Institutional Solutions to the N-Prisoners' Dilemma

The existence of N-prisoners' dilemmas (conflict between individual and collective rationality) is a standard justification for collectivizing decision making through the state, but there is little theory about how different institutions operate to “solve” such dilemmas. The efficiency of majoritarian democracy, “selfish dictatorship” and uncoordinated individualism is explored using a simple nine-person game. Majoritarian democracy is found to produce equilibrium outcomes at the maximum social product available when the opportunity costs of “cooperating” are less than half the magnitude of the externalities, but to produce no such equilibrium when the opportunity costs are greater than that. Our research draws implications for the role of information in constitutional design, and of altruism.