Abstract
Cooperation among agents who cannot identify each other to build reputation is difficult to achieve. In large communities, it is neither feasible for an agent to retrieve the complete history of his/her current partner nor possible to enforce cooperation by punishing the partner immediately, especially when the frequency of interaction is rather rare. This study examines cooperation and the impact of bribery in an extended version of indefinitely repeated Prisoner’s Dilemma, the Law Merchant system stage game, by experimentally testing the model proposed by Milgrom et al. (1990). According to theory, the presence of a disinterested third party that could both keep records and adjudicate disputes would increase the level of cooperation within the community. However, when this third party is prone to bribery, the community will cooperate less when no such institution is present. This study contributes to the literature on bribery experiments by studying bribery’s impact on the overall level of cooperation in markets and constraining a community network for the potential bribe-givers. Main results of this study: 1) With the presence of the third party, whether bribery is possible, the cooperation has a decreasing trend; 2) The possibility of the third-party requesting bribery will decrease cooperation.