Cooperation Among Strangers: An Experiment with Indefinite Interaction

Abstract

We study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely and lacking formal enforcement institutions. In all treatments the efficient outcome is sustainable as an equilibrium. We address the following questions: can these economies achieve full efficiency? Which institutions for monitoring and enforcement promote cooperation? Finally, what classes of strategies are employed to achieve high efficiency? We find that, first, cooperation can be sustained even in anonymous settings; second, some type of monitoring and punishment institutions significantly promote cooperation; and, third, objects dislike indiscriminate strategies and prefer selective strategies.

Keywords: experiments, repeated games, cooperation, equilibrium selection, prisoners' dilemma, random matching

JEL Classification: C90, C70, D80