PUBLICATIONS & REPORTS

Contents Introduction

This study attempts to provide a model explaining the dynamic behavior of an individual’s cooperativeness and the evolution of an economic organization based on the implication of prospect theory. By endogenizing an individual’s willingness to cooperate through its direct impact on his utility function and incorporating the factors of cooperation attitude and the individual’s output share in the Ricardian type of production function, this model is able to describe the cyclical fluctuation of the individual’s willingness to cooperate. This study concludes that except for perfect alignment of the initial cooperativeness among its constituents, the dynamics of an organization’s cooperation cycle will be very irregular. The gradually widening and divergent cooperation attitudes among its constituents will eventually lead to the collapse of the organization. Finally I discuss the implications of this model for Japan’s recent economic reform.