Multilateral Interactions Improve Cooperation Under Random Fluctuations
In an uncertain environment, when does an increase in the breadth of activities in which individuals interact together help foster collaboration on each activity? We show that when players, on average, prefer to stick to a cooperative agreement rather than reneging by taking their privately optimal action, then collaboration can be approximately sustained in a sufficiently broad relationship. This is in contrast to existing results showing that a cooperative agreement can be sustained only if players prefer to adhere to it in every state of the world. We consider applications to favor exchange, multimarket contact, and relational contracts.
Jin Li, Michael Powell
Li, Jin, and Michael Powell. 2018. Multilateral Interactions Improve Cooperation Under Random Fluctuations.