Modeling alliance activity: Opportunity cost eVects and manipulations in an iterated prisoner’s dilemma with exit option

We model the two-Wrm alliance as an iterated prisoners’ dilemma game with an exit option and test several theoretical predictions over two experimental studies. A new major eVect on alliance performance arises by including the exit option (i.e., the option to end the alliance and receive a Wxed payoV that is less than the payoV for mutual cooperation but greater than the payoV for mutual defection). The opportunity cost levels of the Wrms either directly or indirectly inXuence alliance cooperation and alliance payoVs through aVecting the alliance strategies that the Wrms choose. Implications for partner selection, alliance selection and structuring, and strategy choices along the alliance lifespan, build on these results. © 2006 Elsevier Inc. All rights reserved.