Designing Markets to Foster Communication and Cooperation

Abstract : Many markets rely on third-party punishment and reputation mechanisms to incentivize cooperation between buyers and sellers. This paper investigates when truthful communication on such platforms is incentive compatible. We find that communication incentives are difficult to support if each side has a myopic incentive to deviate, but easy to support if only one side has a myopic incentive to deviate. Accordingly, there are strong gains from structuring trade so that either one side moves first, or can use an enforcement intermediary to guarantee their cooperation.

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Classification Through Thick and Thin: Permissive Norms and Strict Rules

Abstract : Classification institutions - such as social norms, cultural or religious traditions, laws, or regulations - assign a normative label, acceptable or wrongful, to actions. This paper investigates how classifications determine and are determined by the degree of expected compliance and the available tools of enforcement. We construct a game theoretic model with N players of different types to illustrate and compare classifications emerging from social norms with those from a formal legal system. We illustrate how a given classification can lead to compliance and then check for the degree of compliance that it can achieve given the enforcement methods. We show that a trade-off inherent in any attempt at classification is that a strict classification might yield better outcomes when people comply but will make enforcement more difficult. The results illustrate how for a given degree of expected compliance, classifications used by social norms (don’t eat meat) with decentralized enforcement cannot be as strict as the one used by a police action based court system (don’t eat peacock meat). This implies that efficient design of classifications can be used as a policy lever to adjust expectations of compliance with given enforcement capability or to improve enforcement when expected compliance is fixed.

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Legible Normativity: the Value of Silly Rules

Abstract : In this paper we model two important, we argue related, features of human normative systems: 1) that the enforcement of rules is routinely dependent on the voluntary enforcement actions of individual agents other than official enforcers; and 2) that human systems of rules frequently include rules with little or no discernible direct impact on welfare ("silly rules"). We show that agents in environments with dense normative structure (lots of silly rules) are able to more accurately and quickly determine whether important rules with consequences for welfare are effectively enforced by other agents. As a result, groups with dense normative structure are more robust to shocks to beliefs about enforcement and adapt more quickly to changes in the sustainability of enforcement. We argue that some norms, rather than directly impacting social welfare, may play a legibility function, assisting agents in their understanding of what are the active rules in a community.

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