Sorting and Sustaining Cooperation

This paper looks at cooperation in teams where some people are selfish and others are conditional cooperators, and where lay-offs will occur at a fixed future date. I show that the best way to sustain cooperation prior to the lay-offs is often in a sorting equilibrium, where conditional cooperators can identify and then work with one another. Changes to parameters that would seem to make cooperation more attractive, such as an increase in the discount factor or the fraction of conditional cooperators, can reduce equilibrium cooperation if they decrease a selfish player's incentive to sort.