Kinked Social Norms and Cooperation

AbstractWe investigate which speci–c social norrns of behauiour - here narrowlyinterpreted as a commonly shared expectations over people behaviour -can sustain a cooperative outcome. We show that in a symmetric settinga speci–c social norm, one shaping the expected. response of all players inthe event of individual or coalitional deviations from any collective choice,plays a special role in making.a cooperative outcome stable. Such a normturns out to be strikingly similar to that assumed in the classical kinked-demand model by Robinson (1933) and Sweezy (1939) (see also Hall andHitch (1939)) for –rms operating in imperfectly competitive markets.Keywords: Kinked Demand, Symmetric Games, Norms of Behaviour,Coalitions. 1 Introduction Often in their social interaction individuals adopt simple behavioural proce-dures. Social scientists talk to various degree, and with di⁄erent meanings,of heuristics, conventions and norms of behaviour. Their emergence can bespontaneous, arising from the evolution of shared expectations into prescrip-tions and then into norms of behaviour (see, for instance, Lewis 1969, Bicchieri,1990 and Castelfranchi et a1., 2002). This is a pervasive phenomenon in mod-ern economies and economic actors, as companies™managers, market tradersand CEOs as well as workers and people in general appear similarly inclinedto adopt simple procedures rather than complex and elaborate strategies, spe-cially when they have to promptly react to unexpected events. Once establishedwithin an organization, i.e.a –rm, a set of norms may constitute its corporateculture.