In the model we develop below, this second problem has multiple aspects. First, traders must be motivated to execute sanctions against Cheaters when that is a personally costly activity. Second, traders must be motivated to keep well enough informed to know when sanctions are required, even though information gathering activities may be personally costly and difficult to monitor. In effect, one who keeps informed about who should be punished for past transgressions is supplying a public good; he deters the traders from cheating against others. Moreover, in our model, no other trader except his current partner will ever know if a trader does not check his partner’s past history, so the trader could avoid supplying the public good without facing any sanction from future traders. Third, traders who are cheated must be motivated to document the episode, even though providing documentation may be personally costly.

XREF: Connects to collective action/public goods problems and the free-rider problem from Olson's logic of collective action.

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 78