hero working papers

The Scope of Cooperation: values and incentives

Number: 328
Year: 2007
Author(s): Guido Tabellini
What explains the range of situations in which individuals cooperate?
This paper studies a theoretical model where individuals respond
to incentives but are also influenced by norms of good conduct inherited
from earlier generations. Parents rationally choose what values to
transmit to their offspring, and this choice is influenced by the quality
of external enforcement and the pattern of likely future transactions.
The equilibrium displays strategic complementarities between values
and current behavior, which reinforce the effects of changes in the
external environment. Values evolve gradually over time, and if the
quality of external enforcement is chosen under majority rule, there is
histeresis: adverse initial conditions may lead to a unique equilibrium
path where external enforcement remains weak and individual values
discourage cooperation.

Keywords: culture, cooperation, institutions, cultural transmission
JEL codes: A10