Cheating Because They Can: The Role of Networks in Informal Governance
LARSON Jennifer M. - New York University (Author)
Paris : Laboratory for Interdisciplinary Evaluation of Public Policies
LIEPP Working Paper : 62
informal institutions, social networks, cooperation, community enforcement, wild west
Settlers flocking to “boomtowns” on the American western frontier were faced with the same task that communities in weak states across the globe face: self-governance. Peer sanctions can enforce cooperation in these environments, but their efficacy depends on the social networks that transmit information from peer to peer. Peripheral network positions can generate such strong incentives to misbehave that persistent cheating obtains in equilibrium. Groups maintaining high levels of cooperation that face shocks to their strategic environment or to their network can ratchet into lesscooperative equilibria in which the most peripheral become ostracized. Furthermore, population change that features rapid growth, high turnover, and enclave settlements can undermine cooperation. These insights help explain the trajectory of cooperation in mining towns in the “wild west” in which high levels of cooperation deteriorated as the population surged, and help make sense of why only certain non-white settlers were targets of hostility and racism.