ABSTRACT
This chapter examines the concept of social dilemmas and its significance for understanding–and improving–the institutional structures of modern society. It analyzes the institutional setting required to create win-win situations that form the basis of the social contract. The chapter is concerned with transforming the outcome of strategy combinations for mutual benefit rather than trying to modify or optimize individual strategies for individual benefit. It demonstrates that the optimal choice of method depends on the type of dilemma situation, the existence or possibility of an effective authority and available incentives. The concept of social dilemmas has a decisive importance for economic ethics. It helps to objectify moral discourse by improving public understanding of the incentive properties of market and state as enforcement mechanisms. The prisoners' dilemma constitutes the archetype of social dilemmas because of its unparalleled combination of simplicity and explanatory power. Economic ethics can make use of istributive dimension and integrative dimensions in its aspiration to facilitate socially superior outcomes.
