(2408.11199) Institutions of public judgment, established by social contract and taxation

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Abstract:Indirect reciprocity is a plausible mechanism for maintaining cooperation: people cooperate with those who have a good reputation, which can be obtained by helping others. However, this mechanism requires that the population agree on who has a good or bad moral reputation. Consensus can be provided by a central institution that monitors and broadcasts reputations. But how can such an institution be maintained, and how can a population ensure that it is effective and incorruptible? Here we investigate a simple mechanism for maintaining an institution of reputational judgment: a mandatory contribution from every member of the population, i.e., a tax. We analyze the maximum possible tax rate that individuals will rationally pay to maintain an institution of judgment, which provides a public good in the form of information, and we derive necessary conditions for individuals to resist the temptation to evade their tax payment. We also consider the possibility that members of institutions may be corrupt and subject to bribery, and we analyze how often an institution should be monitored to prevent bribery. Our analysis has implications for the establishment of robust public institutions that provide social information to support cooperation across large populations, and the potential negative consequences associated with wealth and income inequality are also addressed.