Honesty, Stigma, and Cooperation in an Overlapping-Generations Game

Abstract

We study a two-period overlapping-generations game in which a young agent interacts with an old agent and carries a binary record into old age. Honest agents cooperate with clear partners, whereas strategic agents have a privately known loss from being exploited. A clear record is informative: honest agents remain clear, while some strategic agents acquire stigma. We incorporate this selection into Bayes-consistent stationary equilibrium beliefs. With uniformly distributed losses, strategic young agents use a cutoff rule and equilibrium reduces to a quadratic equation. A simple parameter region has a unique equilibrium; when the temptation to defect is high, low- and high-cooperation corner equilibria coexist with an interior tipping equilibrium. Along that interior branch, a larger honest share lowers both the strategic cutoff and the young cooperation rate. The branch is locally unstable, however, so the result describes a moving coordination threshold rather than a deterioration of stable equilibrium selection. Under a maximin decision rule, strategic cooperation disappears. Probabilistic record clearing weakens incentives at every fixed conjecture, reduces cooperation at locally stable interior equilibria, and under full clearing leaves only defection by strategic agents.