Explaining cooperation between species, or mutualism, poses a challenge to evolutionary theory. Many of the mechanisms that promote cooperation within species are not applicable to cooperation between species. Thus, although mutualisms are ubiquitous in nature and economically important (e.g. pollination), there is currently no general theoretical framework that explains the evolution of mutualisms. This study attempts to develop such a framework by adapting contract theory from economics to model how "natural contracts" evolve between mutualistic species. The research program in mutualism is organized around the assignment of specific mutualisms to one of four existing classes of solution: by-products, partner fidelity, partner choice, and a special case of spatial games. In contrast, economic contract theory, which was devised to model transactions in which information is asymmetrically distributed, is organized around three classes of problems faced by economic agents: moral hazard, adverse selection, and signaling. Mapping the four biological solutions onto the three contract problems reveals that mutualism theory concentrates on moral hazard and hardly recognizes the existence of adverse selection and signaling as formal problems. In fact, adverse selection is a problem in many mutualisms, as potential partners go through a pairing-off or assortment stage, during which cheaters can invade. Economic theory proposes market segmentation solutions to the problem of adverse selection; this approach is applied to mutualism. This project begins with the utilization of a subset of contract theory, Principal-Agent theory, to investigate how the evolution of natural contracts distributes the benefits of mutualism among partners. A major difference between natural and human contracts is that there is no legal system to enforce contracts made between species in the natural world. This work draws and expands on economic theory of self-enforcing contracts to investigate how mutualisms persist in the face of potential exploitation by cheaters. Contract theory is modified to contemplate scenarios in which individuals have bounded rationality and optimization responses to a dynamic process under natural selection. Replicator dynamics, inspired from population genetics, to investigate which contracts can evolve. The broader implications of this study are as follows. First, integration of research and education: this project will train a postdoctoral researcher in contract theory and the evolution of cooperation with the joint involvement of the Departments of Organismic and Evolutionary Biology and Economics at Harvard University. Second, dissemination to a wide, interdisciplinary audience: the researchers will make the results widely available by interacting with the other consortia in the TECT program, publishing in international journals, both economic and biological, and by creating and maintaining a webpage with a self-edited dictionary of economic terms and their biological translation. Third, enhancement of infrastructure for research and education: this project is part of a collaborative effort between researchers in different disciplines and countries to understand the fundamental nature of cooperation. Through a funding initiative from the European Science Foundation to study the evolution of cooperation and trading (TECT), a partnership is created between researchers in the U.S., U.K., Austria, Portugal, Hungary, and France. Fourth, benefits to society: in economics and biology, the study of cooperation has often taken second stage to the study of conflict and competition. This project brings together economists and biologists with considerable experience studying cooperative phenomena in their respective fields. Through this collaboration, an interchange of ideas between economics and biology will be developed that enriches the understanding of the evolution of cooperative behavior in both human and non-human organisms.
