Self-commitment-institutions and Cooperation in Overlapping Generations Games

Abstract: We build a model of overlapping generations with imperfect observability to study the strategic role played by Self-Commitment-Institutions (SCI) in relaxing agents' inclination toward opportunistic behavior and improve efficiency. When SCI are in place, agents voluntarily exert a perfectly observable but costly action, which can affect the incentives to exert the imperfect observable cooperative action. We characterize social norms both with and without SCI, and provide sufficient and necessary conditions under which social norms with SCI exhibit the highest degree of cooperation. Our results are broadly consistent with evidence of cooperation and SCI practices in clubs and ongoing organizations. The role of memory and the impact of growth have been also investigated.