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Markets and Cooperation

Author

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  • Spagnolo, Giancarlo

    (Dept. of Economics, 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.

Suggested Citation

  • Spagnolo, Giancarlo, 1998. "Markets and Cooperation," SSE/EFI Working Paper Series in Economics and Finance 257, Stockholm School of Economics, revised 20 Sep 1999.
    • Handle: RePEc:hhs:hastef:0257
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    Cited by:

    1. Spagnolo, Giancarlo & Lippert, Steffen, 2004. "Networks of Relations," SSE/EFI Working Paper Series in Economics and Finance 570, Stockholm School of Economics, revised 04 Jun 2010.

    More about this item

    Keywords

    Cooperation: repeated games; prisoner's dilemma; commons; reciprocal exchange; implicit contracts; collusion; institutions.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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