Substitutability in Cooperation and Bilateral Enforcement
52 Pages Posted: 18 Nov 2021 Last revised: 18 Aug 2022
Date Written: November 2, 2021
I introduce a favor exchange model that allows players to rely on multiple partners to obtain favors i.e., cooperation is substitutable) and study bilateral enforcement of cooperation. Without substitutability, there is either no cooperation or universal cooperation, while under substitutability, each additional relationship is less valuable than the previous one and intermediate levels of cooperation are observed. I extend the model to allow for transfers, heterogeneous players and community enforcement and compare different forms of enforcement. My results can explain the stratification of social networks in Post-Soviet states and the adoption of different enforcement mechanisms by medieval traders.
Keywords: networks, reciprocity, bilateral enforcement, cooperation
JEL Classification: D85
Suggested Citation: Suggested Citation