How Social Inequality Can Promote Cooperation

Abstract

Does inequality hinder or promote cooperation? To answer this question, we study a Prisoner’s Dilemma with local adaptation, to which we add heterogeneity in payoffs. In our model, agents vary in their wealth, and this inequality affects their potential gains and losses. We find that, in such a world in which the rich can get richer, cooperation defeats exploitation under a wide range of conditions. This is in stark contrast to the traditional evolutionary prisoner’s dilemma, in which cooperation rarely survives, and almost never thrives. Here on the contrary, cooperators do better than defectors, and this even without any strategic behavior or exogenously imposed strategies. We show how different types of inequality increase cooperation, but also how this effect is marginally decreasing. These results have important consequences for our understanding of the type of social and economic arrangements that are optimal and efficient.

Keywords: Prisoner's dilemma, conflict, cooperation, inequality, rich get richer effect, Matthews effect, evolution, heterogeneity, exploitation, survival

JEL Classification: C70, C72, C79, D63