Worth the Wait? Cooperation in a Repeated Prisoner's Dilemma with Search

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Abstract:

A population of more-patient and less-patient types interact in a repeated prisoner's dilemma embedded in a search model. I use this framework to determine, when is the first-best outcome in which all players cooperate feasible, and when it is not, can welfare be improved over the uncooperative equilibrium by exploiting separation within or across markets? I find that the first-best is achievable in a wide range of circumstances despite minimal informational and strategic requirements. When the first-best is infeasible, both types prefer separation-by-action to the fully-uncooperative equilibrium, while separation across markets provides further Pareto improvement opportunities, results indicating the potential of sorting to increase welfare.