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We study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely. Can these economies achieve full efficiency even without formal enforcement institutions? Which institutions for monitoring and enforcement facilitate cooperation? Finally, what classes of strategies do subjects employ? We find that, first, cooperation can be sustained even in anonymous settings; second, some type of monitoring and punishment institutions significantly promote cooperation; and, third, subjects mostly employ strategies that are selective in punishment.


This is a pre-copy-editing, author-produced PDF of an article accepted for publication in American Economic Review, volume 99, issue 3, 2009 following peer review. The definitive publisher-authenticated version is available at DOI: 10.1257/aer.99.3.979.

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American Economic Association



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