Skip to main content
SpringerLink
Log in

Long-term relationships as safeguards

  • Research Article
  • Published:
Economic Theory Aims and scope Submit manuscript

Abstract

We analyze a repeated prisoners’ dilemma game played in a community setting with heterogeneous types. The setting is such that individuals choose whether to continue interacting with their present partner, or separate and seek a new partner. Players’ types are not directly observed, but may be imperfectly inferred from observed behavior. We focus on a class of equilibria that satisfy zero tolerance and fresh start. We find that the punishment for defecting and the reward for cooperating are driven by the formation and the dissolution of long-term, high-paying relationships: an individual who defects, aborts a long-term relationship that he is in, or that he might have entered into, is thrown into short-term interactions with individuals who are likely to defect and, consequently, receives low payoffs. On the flip side, an individual who cooperates, enters into or prolongs a long-term interaction with a partner who cooperates and, consequently, receives high payoffs.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abreu D., Pearce D., Stacchetti E.: Toward a theory of discounted repeated games with imperfect monitoring. Econometrica 58, 1041–1063 (1990)

    Article  Google Scholar 

  • Dal Bo P.: Social norms, cooperation and inequality. Econ Theory 30, 89–105 (2007)

    Google Scholar 

  • Datta, S.: Building trust. Working paper, London School of Economics, Mimeo (1993)

  • Diamond P.: Aggregate demand management in search equilibrium. J Polit Econ 90, 881–894 (1982)

    Article  Google Scholar 

  • Dixit A.: On modes of economic governance. Econometrica 71, 449–481 (2003)

    Article  Google Scholar 

  • Eeckhout J.: Minorities and endogenous segregation. Rev Econ Stud 73, 31–53 (2006)

    Article  Google Scholar 

  • Ellison G.: Cooperation in the prisoners-dilemma with anonymous random matching. Rev Econ Stud 61, 567–588 (1994)

    Article  Google Scholar 

  • Frank R.: Passions Within Reason. Norton, New York (1988)

    Google Scholar 

  • Fudenberg D., Maskin E.: The folk theorem in repeated games with discounting or with incomplete information. Econometrica 54, 533–554 (1986)

    Article  Google Scholar 

  • Ghosh P., Ray D.: Cooperation in community Interaction without information flows. Rev Econ Stud 63, 491–519 (1996)

    Article  Google Scholar 

  • Johnson S., McMillan J., Woodruff C.: Courts and relational contracts. J Law Econ Organ 18, 211–277 (2002)

    Article  Google Scholar 

  • Kali R.: Endogenous business networks. J Law Econ Organ 15, 615–636 (1999)

    Article  Google Scholar 

  • Kandori M.: Social norms and community enforcement. Rev Econ Stud 59, 63–80 (1992)

    Article  Google Scholar 

  • Kranton R.: The formation of cooperative relationships. J Law Econ Organ 12, 214–233 (1996)

    Google Scholar 

  • Mortensen D.: Property rights and efficiency in mating, racing, and related games. Am Econ Rev 72, 968–979 (1982)

    Google Scholar 

  • Okuno-Fujiwara, M., Fujiwara-Greve, T.: Voluntarily separable prisoners’ dilemma. Working paper, University of Tokyo, Mimeo (2006)

  • Rob, R., Yang, H.: Long-term relationships as safeguards. Working paper, Ohio State University, Mimeo (2005)

  • Shapiro C., Stiglitz J.: Equilibrium unemployment as a worker disciplinary device. Am Econ Rev 74, 433–444 (1984)

    Google Scholar 

  • Sobel J.: Interdependent preferences and reciprocity. J Econ Lit 43, 392–436 (2005)

    Article  Google Scholar 

  • Sobel J.: For better or forever: formal versus informal enforcement. J Labor Econ 24, 271–297 (2006)

    Article  Google Scholar 

  • Taylor C.: The old-boy network and the young-gun effect. Int Econ Rev 41, 871–891 (2000)

    Article  Google Scholar 

  • Tirole J.: A theory of collective reputations. Rev Econ Stud 63, 1–22 (1996)

    Article  Google Scholar 

  • Watson J.: Starting small and renegotiations. J Econ Theory 85, 52–90 (1999)

    Article  Google Scholar 

  • Watson J.: Starting small and commitment. Games Econ Behav 38, 176–199 (2002)

    Article  Google Scholar 

  • Yang, H.: Nonstationary relational contracts. Working paper, Ohio State University, Mimeo (2007)

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Pennsylvania, Philadelphia, PA, 19104, USA

    Rafael Rob

  2. Department of Economics, The Ohio State University, Columbus, OH, 43210, USA

    Huanxing Yang

Authors
  1. Rafael Rob
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Huanxing Yang
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Huanxing Yang.

Additional information

We thank the co-editor, two anonymous referees, and the seminar participants at Indiana, Maryland, Penn, Pittsburgh, and the Decentralization Conference (Purdue, 2003) for helpful comments and suggestions. Rafael Rob acknowledges NSF support under grant number 01-36922.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Rob, R., Yang, H. Long-term relationships as safeguards. Econ Theory 43, 143–166 (2010). https://doi.org/10.1007/s00199-008-0421-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00199-008-0421-1

Keywords

JEL Classification

Search

Navigation