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...ith ongoing economic relations has a “tragedy of the commons” quality about it: the profile of dominant strategies for the agents can yield a Pareto inferior collective outcome. Preaching “identity reform” to such people is a bit like trying to counter an over-fishing problem by lecturing fishermen on the moral need for forbearance! We wish to be explicit and clear at the outset about what we have in mind when using the term “identity.” Human identity includes both a personal and a social aspect. Social identity deals with how an individual is perceived and categorized by others (e.g., Erving Goffman 1963). In contrast, personal identity — which is the subject of this paper, and which psychologists sometimes call “ego identity” — deals with a person’s answer to the question: “Who am I?” Our proposed model of personal identity posits that, to answer this question, an agent must provide a “narrative” about her personal history. 1 That is, she has to summarize her life experiences. Because a full personal history is (necessarily) a very complex object, and since their cognitive capacities are limited, answering the “Who Am I?” question requires agents to project elaborate personal accounts onto ma...

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... group’s “collective identity” is any self-representional mode of this sort which has been adopted in common by (most of) the agents in that group. We formalize the problem of selective self-representation, and use the resulting framework to study the efficiency implications of the “identity” choices people make. This, we believe, is one way that economic analysis can contribute to the study of identity-related issues.1 To the extent that self-representation affects subsequent economic transactions, a rational agent chooses her identity to maximize the payoff from such transactions. Following Fang and Loury (2004), we embed our notion of identity in a particular economic transaction — repeated income risk sharing. More specifically, we consider a two-stage game in which identity choices are made in the first stage, and agents engage — more or less remuneratively — in an infinitely repeated income-risk-sharing game in the second stage. Given this framework, we say that a collective identity has been adopted when, in subgame perfect equilibrium, individuals make the same first stage identity choices. We show under this set-up that a group of people may rationally elect to embrace a way of thinking about ...