Abstract
In their classic analyses, Hobbes and Hume argue that offensively violating a covenant is irrational because the offense ruins one’s reputation. This paper explores conditions under which reputation alone can enforce covenants. The members of a community are modeled as interacting in a Covenant Game repeated over time. Folk theorems are presented that give conditions under which the Humean strategy of performing in covenants only with those who have never offensively violated or performed with an offensive violator characterizes an equilibrium of the repeated Covenant Game. These folk theorems establish that for certain ideal settings Hobbes’ and Hume’s arguments against offensively violating covenants are compelling. However, these ideal settings presuppose that the community has certain mechanisms that generate common knowledge of the identities of those with whom one should perform. I analyze the results of computer simulations of the interactions in a community whose members must rely upon private communication alone. The computer simulation data show that in this community, reputation effects cannot effectively deter members from offensively violating covenants. I conclude that Hobbes’ and Hume’s warnings against offensive violation are compelling only on condition that the community is sufficiently structured to generate common knowledge among its members. I also conclude that even in such structured communities, the Humean strategy is not the uniquely “correct” policy.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Aumann R. (1974) Subjectivity and correlation in randomized strategies. Journal of Mathematical Economics 1: 67–96
Aumann R. (1976). Agreeing to disagree. Annals of Statistics 4: 1236–1239
Aumann R. (1987). Correlated equilibrium as an expression of Bayesian rationality. Econometrica 55: 1–18
Axelrod R. (1981) The emergence of cooperation among egoists. American Political Science Review 75: 306–318
Axelrod R. (1984) The evolution of cooperation. Basic Books Inc., New York
Batali J., Kitcher P. (1995) Evolution of altruism in optional and compulsory games. Journal of Theoretical Biology 175: 161–171
Binmore, K. (1994). Game theory and the social contract volume I: Playing fair. Cambridge, Massachusetts: MIT Press.
Binmore K. (1998) Game theory and the social contract volume II: Just playing. MIT Press, Cambridge Massachusetts
Curley E. (1994) Introduction to Hobbes’ Leviathan. In: Curley E (eds). Leviathan by Thomas Hobbes. Hackett Publishing Company, Indianapolis, pp. viii–xlvii
Dekel E., Gul F. (1997) Rationality and knowledge in game theory. In: Kreps D.M., Wallis K.F. (eds). Advances in economics and econometrics: Theory and Applications. Cambridge University Press, Cambridge, pp. 87–172
Ellison G. (1994) Cooperation in the prisoner’s dilemma with anonymous matching. Review of Economic Studies 61: 567–588
Flood M.M. (1958) Some experimental games. Management Science 5: 5–26
Gaylord R.J., D’Andria L.J. (1998) Simulating society: A mathematica toolkit for modeling socioeconomic behavior. Springer Verlag, New York
Hampton J. (1986) Hobbes and the social contract tradition. Cambridge University Press, Cambridge
Hill D.E. (2004) Errors of judgment and reporting in a law merchant system. Theory and Decision 56: 239–268
Hobbes, T. (1651) (1991). Leviathan, ed. Richard Tuck. Cambridge: Cambridge University Press.
Hume, D. (1740) (2000). A treatise of human nature, ed. David Fate Norton and Mary J. Norton. Oxford: Oxford University Press.
Kandori M. (1992) Social norms and community enforcement. Review of Economic Studies 59: 63–80
Kavka G. (1986) Hobbesian moral and political theory. Princeton University Press, Princeton
Kitcher P. (1993) The evolution of human altruism. The Journal of Philosophy 90: 497–516
Lewis D. (1969) Convention: A philosophical study. Harvard University Press, Cambridge Massachusetts
Linster B. (1992) Evolutionary stability in the infinitely repeated prisoners’ dilemma played by two-state Moore machines. Southern Economic Journal 58: 880–903
Millgrom, P. R., North, D. C., & Weingast, B. R. (1990) (1997). The role of institutions in the revival of trade: The law merchant, private judges, and the champagne fairs. Economics and Politics, 2, 1–23. Reprinted in Klein, Daniel B., Reputation: Studies in the voluntary elicitation of good conduct (pp. 243–266). Ann Arbor, Michigan: University of Michigan Press.
Skyrms B. (1996) Evolution of the social contract. Cambridge University Press, Cambridge
Skyrms B. (1998) The shadow of the future. In: Coleman J., Morris C. (eds). Rational commitment and social justice: Essays for Gregory Kavka. Cambridge University Press, Cambridge, pp. 12–22
Sugden R. (1986) The economics of rights, co-operation and welfare. Basil Blackwell Inc., Oxford
Vanderschraaf, P. (2005). Reputational enforcement of covenants. Technical Report No. CMU-PHIL-167.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Vanderschraaf, P. Covenants and reputations. Synthese 157, 167–195 (2007). https://doi.org/10.1007/s11229-006-9147-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11229-006-9147-4