Sorting and Sustaining Cooperation∗

This paper look at selfish types and conditional cooperators working together in teams. Players knows that lay-offs will occur at a fixed fu-ture date, which creates incentives similar to those in a finitely repeated prisoners ’ dilemma. The results show that the equilibrium with the most cooperation tends to be a sorting equilibrium, where players reveal their types so that condi-tional cooperators can identify and cooperate with one another. Changes in parameter values that in most situations would make cooperation more attractive, such as an increase in the discount factor, the fraction of con-ditional cooperators or the pay-off to reciprocated cooperation, can actu-ally reduce equilibrium cooperation if they decrease an egoist’s incentive to sort.