Dennis Snower (Blavatnik School of Governance, Oxford University)
The paper shows how economic cooperation rests on social cooperation and vice versa. People's willingness to make each other better off in economic markets – in transactions requiring trust and perspective-taking or in the provision of collective goods requiring prosociality and the observance of social norms – requires a willingness to cooperate socially in pursuit of common goals. Furthermore, social cooperation is affected by economic cooperation, since economic rewards contribute to the social rewards from cooperation. Thus economic activity may be understood as the outcome of a reflexive relation between economic and social cooperation. The more fragmented the society is, the less efficient the economy becomes. Our analysis explains the degree of social cooperation in terms of psychological motives (determining the objective of one's behavior, thereby making preferences dependent on the social context) and social and institutional rigidities (represented through identity switching costs). We show how the evolution of economic and social cooperation depends on a prosociality parameter (measuring the propensity to cooperate), a reciprocity parameter (measured as the sum of reciprocated payoffs minus the sum of unreciprocated payoffs, under prosocial and competitive motives) and the identity switching costs. Thereby the paper provides a novel underpinning for explaining economic activities.
Assar Lindbeck (University of Stockholm) and Dennis J. Snower (Blavatnik School of Governance, Oxford University)