a1 Cornell University
Much of economics is built on the assumption that individuals are driven by self-interest and economic development is an outcome of the free play of such individuals. On the few occasions that the existence of altruism is recognized in economics, the tendency is to build this from the axiom of individual selfishness. The aim of this paper is to break from this tradition and to treat as a primitive that individuals are endowed with the ‘cooperative spirit’, which allows them to work in their collective interest, even when that may not be in their self-interest. The paper tracks the interface between altruism and group identity. By using the basic structure of a Prisoner's Dilemma game among randomly picked individuals and building into it assumptions of general or in-group altruism, the paper demonstrates how our selfish rationality interacts with our innate sense of cooperation. The model is used to outline circumstances under which cooperation will occur and circumstances where it will break down. The paper also studies how sub-groups of a society can form cooperative blocks, whether to simply do better for themselves or exploit others.
Kaushik Basu is currently Chief Economic Adviser, Government of India, Ministry of Finance, on leave from Cornell University's Department of Economics, where he is Professor of Economics and C. Marks Professor of International Studies. His recently completed manuscript, Beyond the Invisible Hand: A Manifesto for a New Economics, is to be published by Princeton University Press later this year.
This paper has been in incubation for a long time and I have accumulated more intellectual debts than I can inscroll in a footnote. While the risk of omission is, in this case, a certainty, I must record my gratitude to Geir Asheim, Talia Bar, Alaka Basu, Anindya Bhattacharya, Anil Bisen, John Bone, John Gray, Matt Jackson, Hyejin Ku, Ashok Mathur, Dilip Mookherjee, Bhiku Parekh, Amartya Sen, Richard Swedberg and Maria Monica Wihardja. Some of the initial ideas were part of my Vera Anstey Lecture, delivered at the 88th Annual Conference of the Indian Economic Association. I have subsequently presented this paper at conferences at York University, UK (on ‘Identity, Responsibility and Justice’, May 2007) and the University of California, Riverside (on ‘The Non-Welfarist Basis of Welfare Economics’, October 2007), and at the Indian Statistical Institute, New Delhi, and the paper has benefited greatly from the discussions that followed. Finally, I am grateful to an anonymous referee and an editor of the journal for extensive and valuable comments on the paper.