The Emergence of Enforcement

JIWP Number: 2222

Anderlini, L., Felli, L., Piccone, M.

Abstract

We ask how enforcement can endogenously emerge in a landscape in which only raw power, iron fists, govern the interaction of agents. If two agents are ranked in terms of power, the more powerful one can expropriate, at a cost, the less powerful one. Alternatively, both agents can engage in surplus-augmenting cooperation (e.g. trade). If expropriation is not too costly and cooperation is not overwhelmingly productive, for any pair of ranked agents the possibility of expropriation prevents cooperation. The more powerful agent finds it profitable to expropriate the less powerful one. However, if expropriating agents who are net expropriators of others is cheaper, then a more powerful agent may endogenously become an “enforcer” for lower ranked agents. In equilibrium, the more powerful agent expropriates the less powerful ones by smaller amounts, and the less powerful ones cooperate and refrain from expropriating agents below them. This is because if they do not the more powerful agent will find it cheaper to expropriate only them by a larger amount. Surprisingly, the details of the power structure are irrelevant for enforcement to emerge as an equilibrium phenomenon provided that the original jungle is inhabited by a sufficiently large number of agents and by one that dominates all others. 

Classification JEL
C79
D00
D01
D31
K19
K40
K49.
JIWP