Public Good Contributions, Signalling, and the Evolution of Trust

This paper develops a theory of the evolution of preferences for honesty, trust, and the voluntary provision of public goods in a society composed exclusively of rational, Bayesian optimisers. Unlike conventional evolutionary models, player types are not deÞned by their strategies, but rather (as in standard economic theory) by their preferences. Thus agents do not play Þxed, wired-in strategies, but rather choose strategies that maximise their expected utilities. In each stage of his or her career, an agent decides (a) whether to honour trust in a bilateral market transaction, and (b) whether to contribute to the provision of a non-excludable public good. We study the evolution of a community consisting of opportunists, who simply maximise material payoffs, and honest types, who prefer to honour trust and contribute to the provision of public goods. While individual interactions are one-shot, agents know the history of play of all others in the community. In equilibrium, opportunists contribute (with positive probability) to the provision of the public good in order to maintain reputations for being honest types, so as to be trusted in their market transactions over the course of their careers. A novel result of the model is that the presence of a public good enhances the evolutionary stability of the honest type