Asymmetric social norms

•We study cooperation and social norms among heterogeneous strangers.•Occasional defections may be part of efficient play.•If so, then contagious punishment is needed to support high payoffs.•We derive computable closed-form expressions for continuation payoffs.

Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.