The social leverage effect: Institutions transform weak reputation effects into strong incentives for cooperation.

Abstract

Institutions allow cooperation to persist when reciprocity and reputation provide insufficient incentives. Yet how they do so remains unclear, especially given that institutions are themselves a form of cooperation. To solve this puzzle, we develop a mathematical model of reputation-based cooperation in which two social dilemmas are nested within one another. The first dilemma, characterized by high individual costs or insufficient monitoring, cannot be solved by reputation alone. The second dilemma, an institutional collective action, involves individuals contributing to change the parameters of the first dilemma in a way that incentivizes cooperation. Our model demonstrates that this nested architecture creates a leverage effect. While insufficient on its own to incentivize cooperation in the first dilemma, reputation incentivizes contributions to the institutional collective action, which, in turn, strengthen the initially weak incentives for cooperation in the first dilemma. Just as a pulley system transforms minimal muscular strength into significant lifting capability, institutions act as cooperative pulleys, transforming initially weak reputational incentives into powerful drivers of cooperative behavior. Based on these results, we suggest that institutions have developed as social technologies, designed by humans to exploit this social leverage effect, just as material technologies are designed to exploit physical laws.