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On The Economic Value of Repeated Interactions Under Adverse Selection

Author

Listed:
  • Lorenzo Rocco

    (Università di Padova)

  • Ottorino Chillem

    (Università di Padova)

Abstract

The paper studies, in a repeated interaction setting, how the presence of cooperative agents in a heterogeneous community organized in groups affects efficiency and group stability. The paper expands on existing literature by assuming that each type can profitably mimic other types. It is shown that such enlargement of profitable options prevents group stabilization in the single group case. Stabilization can be obtained with many groups, but its driver is not the efficiency gain due to the presence of cooperative individuals. Rather, stabilization is the result of free riding opportunities.

Suggested Citation

  • Lorenzo Rocco & Ottorino Chillem, 2006. "On The Economic Value of Repeated Interactions Under Adverse Selection," Working Papers 2006.73, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2006.73
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    References listed on IDEAS

    as
    1. Sen, Amartya, 1985. "Goals, Commitment, and Identity," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(2), pages 341-355, Fall.
    2. Rauch, James E. & Watson, Joel, 2003. "Starting small in an unfamiliar environment," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 1021-1042, September.
    3. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    4. Parikshit Ghosh & Debraj Ray, 1996. "Cooperation in Community Interaction Without Information Flows," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 491-519.
    5. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 12(1), pages 214-233, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Adverse Selection; Group Stability; Altruism;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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