New study reveals the social leverage effect

How institutions turn weak reputational incentives into strong motives for co-operation

Institutions are the backbone of human societies. They promote cooperation by rewarding prosocial behaviour and punishing selfish behaviour. But they face a fundamental paradox: although they were created to reward cooperation, they themselves depend on the cooperation of their members to function. A new study published in the prestigious journal Proceedings of the National Academy of Sciences (PNAS) shows how institutions can emerge and thrive.

Plön/Germany, December 16th, 2024 Researchers from the Max Planck Institute for Evolutionary Biology, the Institute for Advanced Studies (IHS) and the Institut Jean Nicod at the ENS-PSL have developed a model that explains how institutions can emerge through reputation. They analysed two related challenges: For the first problem, which is characterised by high costs or difficult monitoring, reputation alone is not enough to encourage cooperation. For the second problem, however, people can act together to improve the conditions for the first problem.

The study shows that this combination works like a lever: The desire for a good reputation motivates people to participate in solving the second problem. These contributions then create new incentives to tackle the difficult first problem together.

Japan in the Tokugawa period provides an illustrative example. At that time, village communities faced the challenge of sustainably managing shared forest resources such as firewood and building materials. This problem corresponded to the ‘tragedy of the commons’: each individual had incentives to use as many resources as possible, which could lead to overexploitation. As it was difficult to monitor individual forest utilisation, the villagers developed an institution: the role of the detective. These detectives monitored forest utilisation and imposed penalties for rule violations. This created new incentives to abide by the rules.

However, the institution itself also had to be monitored in order to avoid corruption or abuse of power. This task was easier to accomplish as the detectives could be monitored better than the individual forest users. A bad reputation could have cost the detectives their jobs and social status. By solving this second, simpler problem, the community was also able to tackle the more complex problem of forest utilisation.

The study concludes that institutions act as social technologies that utilise universal human motives such as the desire for a good reputation. Much like a pulley multiplies a small force to move large loads, institutions transform weak reputational effects into strong incentives for co-operation. Over time, institutions have been refined to utilise these mechanisms more efficiently and enable societies to tackle increasingly complex cooperation problems.

Original publication:

J. Lie-Panis, L. Fitouchi, N. Baumard, J. André (2024)
The social leverage effect: Institutions transform weak reputation effects into strong incentives for cooperation,
Proc. Natl. Acad. Sci. U.S.A. (PNAS) 121 (51) e2408802121,
(https://doi.org/10.1073/pnas.2408802121) (2024).

Image source MPI for Evolutionary Biology, Institutions allow reputation to indirectly solve difficult co-operation problems.