Recently, I attended a lecture given by Gloria Steinem where she mentioned how many of the native and traditional cultures of the world valued cooperation. In these cultures, instead of playing competitive games or sports, they would play games that encouraged the whole group to cooperate and coordinate. She also mentioned how the culture of competition is such relatively recent in human history, and very centered within just European and American culture.

This got me to thinking.... in the introductory and intermediate microeconomic theory courses, students study a few basic models of markets: monopoly, oligopoly, and competition. Further, we learn that competition is "the best" because it maximizes consumer surplus, and we all get what we want at the price we are willing to pay. But what about cooperation? Why aren't coopeative market or firm models included in this material? Cooperation between groups, cooperatives, and groups of cooperatives- what I don't mean by that is a state controlled market.

What I am trying to describe here is something drawn off of something in game theory, I guess. An idea to consider would be the prisoner's dilemna, where the competitive and self-interested strategy (defect, defect) would end up resulting in a Nash equilibrium. But if a cooperative strategy were to be played instead, the players would have both higher individual payouts as well as a higher total payout. This shows the inefficiency of competition and self-interest, and that cooperation could provide a better alternative for both individual and community well-being.

I tried searching for some literature on the idea of a "cooperative market", however at a glance I was only able to find utopian socialist views on this. I am interested in knowing whether or not a robust market model could be developed using the idea of cooperation, which for so long allowed traditional native societies and cultures to develop and thrive. I am certainly aware of the successes worker cooperative models have had for firms, and I am wondering if there is a complete cooperative model that takes a more individualist approach and possesses the kind of "elegance" that the micro models of competition have. Suggestions for further reading would be welcomed.

The short answer is yes, but there are many many different ways (i.e. models) of going about it.

ReplyDeleteSince you are familiar with game theory, the most accessible concept for you may be the Folk Theorem. Here's a simple illustration.

You mentioned the Prisoner's dilemma. This is normally taught as a one-shot game. In that game, as you said, the Nash equilibrium (the equilibrium in which neither player has an incentive to deviate) is to defect, for both players.

Imagine the prisoner's dilemma played by the same two people over and over -- indeed, for an infinite number of times. Imagine that in this new game the players adopt a strategy along the lines of: "if the other player chooses to cooperate, I will also cooperate on future rounds. However, if at any stage of this infinite game, the other player defects, then i will automatically defect for all future rounds".

The folk theorem is basically an outline of the conditions under which such a cooperative strategy, where neither player has an incentive to defect at ANY stage of the game, can be adopted.

It comes down to a few things: first, the players need to value future time periods enough to take that into consideration when making their present-period choices. Second, the gain to a player of defecting must be smaller than the present value of the loss incurred by that player who will become caught in a (defect, defect) equilibrium due to her defecting.

As long as these conditions are met, cooperation may be sustained. It's quite an interesting issue and has seen an enormous array of applications! check out wikipedia and any game theory text for info on the folk theorem. for applications, see the "efficiency wage" models in labor economics.

(i also have some posts on my blog about efficiency wages if you do a quick search, but that should probably be your last choice in doing research on this :)

you may find this way of thinking about cooperation a bit disconcerting (incentives to cooperate? is that really how the world works...?). i do too, and it's important to realize that this isn't the only answer to your question -- just a very mainstream and popular one.

Hi,

ReplyDeleteI am also an undergraduate Economics student. There is a lot of literature in Economics on Cooperation in societies and markets. Paul Seabright has a very interesting book called 'The Company of strangers', which is subtitled 'A natural history of Economic Life'. I was exposed to some of the ideas in a paper by Prof. Dasgupta. It can be found here: http://www.econ.cam.ac.uk/faculty/dasgupta/09/DARWIN2.pdf. There are several other economists and behavioural scientists who have worked on cooperation. These include Samuel Bowles, Elinor Ostrom (the 2009 Nobel Laureate), Robert Axelrod and Robert Sugden.