This paper explores the range of situations in which individuals cooperate, focusing on the interplay between economic incentives and internalized norms of good conduct. The author, Guido Tabellini, models cooperation as a strategic game where individuals respond to both material incentives and values inherited from earlier generations. Parents choose what values to pass on to their children, influenced by the quality of external enforcement and future transaction patterns. The equilibrium displays strategic complementarities between values and behavior, reinforcing the effects of changes in the external environment. Values evolve gradually over time, and if external enforcement is chosen under majority rule, there can be hysteresis, where initial conditions may lead to a unique equilibrium with weak external enforcement and individual values discouraging cooperation. The paper combines economic and sociological perspectives, using economic tools to study the endogenous evolution of values. It analyzes how norms of generalized morality, which apply to a broader range of social interactions, evolve over time. Parents optimize their educational choices to shape their children's values, considering both the current and future environment. The equilibrium is both backward-looking and forward-looking, reflecting the interplay between historical features and future expectations. The model captures the distinction between limited and generalized morality, where limited morality applies only within a narrow circle, while generalized morality applies to everyone. The scope of cooperation is influenced by the rate at which norms decay with distance and the cost of cheating. The paper also discusses the endogenous evolution of values, showing that parents are altruistic and care about their children's welfare, but evaluate their children's utility using their own values. This leads to strategic complementarities, where an increase in the proportion of good players (those with higher trustworthiness) expands the scope of cooperation. The paper concludes by discussing the implications of changes in external enforcement and economic geography on the equilibrium. Improvements in external enforcement can lead to a larger scope of cooperation, which in turn increases the proportion of good players, creating a positive feedback loop. Economic geography, such as localization or globalization, can also affect the diffusion of values and the scope of cooperation, depending on the pattern of moral ties and future transactions.This paper explores the range of situations in which individuals cooperate, focusing on the interplay between economic incentives and internalized norms of good conduct. The author, Guido Tabellini, models cooperation as a strategic game where individuals respond to both material incentives and values inherited from earlier generations. Parents choose what values to pass on to their children, influenced by the quality of external enforcement and future transaction patterns. The equilibrium displays strategic complementarities between values and behavior, reinforcing the effects of changes in the external environment. Values evolve gradually over time, and if external enforcement is chosen under majority rule, there can be hysteresis, where initial conditions may lead to a unique equilibrium with weak external enforcement and individual values discouraging cooperation. The paper combines economic and sociological perspectives, using economic tools to study the endogenous evolution of values. It analyzes how norms of generalized morality, which apply to a broader range of social interactions, evolve over time. Parents optimize their educational choices to shape their children's values, considering both the current and future environment. The equilibrium is both backward-looking and forward-looking, reflecting the interplay between historical features and future expectations. The model captures the distinction between limited and generalized morality, where limited morality applies only within a narrow circle, while generalized morality applies to everyone. The scope of cooperation is influenced by the rate at which norms decay with distance and the cost of cheating. The paper also discusses the endogenous evolution of values, showing that parents are altruistic and care about their children's welfare, but evaluate their children's utility using their own values. This leads to strategic complementarities, where an increase in the proportion of good players (those with higher trustworthiness) expands the scope of cooperation. The paper concludes by discussing the implications of changes in external enforcement and economic geography on the equilibrium. Improvements in external enforcement can lead to a larger scope of cooperation, which in turn increases the proportion of good players, creating a positive feedback loop. Economic geography, such as localization or globalization, can also affect the diffusion of values and the scope of cooperation, depending on the pattern of moral ties and future transactions.