COORDINATED PUNISHMENT AND THE EVOLUTION OF COOPERATION

In this paper, we analyze a team trust game with coordinated punishment of the allocator by investors and where there is also a final stage of peer punishment. We study the effect of punishment on the reward and the investment decisions, when the effectiveness and cost of coordinated punishment depend on the number of investors adhering to this activity. The interaction takes place in an overlapping-generations model with heterogeneous preferences and incomplete information. The only long-run outcomes of the dynamics are either a fully cooperative culture (FCC) with high levels of trust and cooperation and fair returns or a non-cooperative culture with no cooperation at all. The basin of attraction of the FCC is larger; the higher the institutional capacity of coordinated punishment, the higher the level of peer pressure and the smaller the individual cost of coordinated punishment.