Cooperation in a Repeated Prisoner's Dilemma with Ostracism
1989, Journal of Economic Behavior and Organization
Eric Bennett Rasmusen, David Hirshleifer
The unique Nash equilibrium of the finitely repeated n-person Prisoners’ Dilemma calls for defection in all rounds. One way to enforce cooperation in groups is ostracism: players who defect are expelled. If the group’s members prefer not to diminish its size, ostracism hurts the legitimate members of the group as well as the outcast, putting the credibility of the threat in doubt. Nonetheless, we show that ostracism can be effective in promoting cooperation with either finite or infinite rounds of play. The model can be applied to games other than the Prisoners’ Dilemma, and ostracism can enforce inefficient as well as efficient outcomes.
Rasmusen, Eric Bennett and David Hirshleifer (1989), "Cooperation in a Repeated Prisoner's Dilemma with Ostracism," Journal of Economic Behavior and Organization, Vol. 12, August, 87-106 (183).