The Effect of Incentives and Meta-incentives on the Evolution of Cooperation

Although positive incentives for cooperators and/or negative incentives for free-riders in social dilemmas play an important role in maintaining cooperation, there is still the outstanding issue of who should pay the cost of incentives. The second-order free-rider problem, in which players who do not provide the incentives dominate in a game, is a well-known academic challenge. In order to meet this challenge, we devise and analyze a meta-incentive game that integrates positive incentives (rewards) and negative incentives (punishments) with second-order incentives, which are incentives for other players’ incentives. The critical assumption of our model is that players who tend to provide incentives to other players for their cooperative or non-cooperative behavior also tend to provide incentives to their incentive behaviors. In this paper, we solve the replicator dynamics for a simple version of the game and analytically categorize the game types into four groups. We find that the second-order free-rider problem is completely resolved without any third-order or higher (meta) incentive under the assumption. To do so, a second-order costly incentive, which is given individually (peer-to-peer) after playing donation games, is needed. The paper concludes that (1) second-order incentives for first-order reward are necessary for cooperative regimes, (2) a system without first-order rewards cannot maintain a cooperative regime, (3) a system with first-order rewards and no incentives for rewards is the worst because it never reaches cooperation, and (4) a system with rewards for incentives is more likely to be a cooperative regime than a system with punishments for incentives when the cost-effect ratio of incentives is sufficiently large. This solution is general and strong in the sense that the game does not need any centralized institution or proactive system for incentives.