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  • Print publication year: 2014
  • Online publication date: February 2015

2 - Social Distance and Self-Enforcing Exchange*

Summary

Mechanisms of self-governance grounded in the discipline of continuous dealings come in two basic forms: bilateral-punishment strategies and multilateral-punishment strategies. Bilateral-punishment strategies involve a single person refusing to interact in the future with persons who cheated them in the past. They constitute “one-man boycotts.” Multilateral-punishment strategies involve multiple persons refusing to interact in the future with persons who cheated them or others in the past. They constitute multi-person boycotts. Because they punish uncooperative behavior more severely, multilateral-punishment strategies supply the stronger threat to uncooperative behavior. Thus, in principle, they're able to secure cooperation under a wider variety of circumstances.

Consider two societies: one populated by highly patient individuals, the other populated by highly impatient ones. Because highly patient individuals discount the earnings from interacting in the future with others minimally, the threat of losing the earnings from interacting in the future with even a single person if they cheat that person today may be enough to lead the former society's members to behave cooperatively. For these individuals, the discounted value of the revenue lost from being unable to interact in the future with just one other person exceeds the one-shot payoff of behaving uncooperatively toward him. Bilateral punishment is fully effective here.