Evolution of cooperation in social dilemmas: signaling internalized norms

Economists have a long tradition in identifying the evolution of cooperation in large, unstructured societies as a puzzle. We suggest a new explanation for cooperation which avoids restrictions of most previous attempts. Our explanation deals with the role of internalized norms for cooperation in large unstructured populations. Even internalized norms, i.e. norms which alter the perceived utility from acting in a cooperative or in an uncooperative way, will not help to overcome a dilemma in an unstructured society, unless and this is the thrust of the current paper individuals are able to signal their property of being a norm bearer. Only when internalization of the norm may be communicated in a reliable way, the picture may change. We derive necessary and sufficient condition for cooperation to be part of an evolutionary stable equilibrium. These conditions relate signaling cost of norm-adopters and non-adopters, the strength of the social norm and parameter measuring the cost of cooperation.