  This paper studies a preference evolution model in which a population of
agents are matched to play a sequential prisoner's dilemma in an incomplete
information environment. An institution can design an incentive-compatible
screening scheme, such as a special zone that requires an entry fee, or a
costly label for purchase, to segregate the conditional cooperators from the
non-cooperators. We show that institutional intervention of this sort can help
the conditional cooperators to prevail when the psychological benefit of
cooperating for them is sufficiently strong and the membership of the special
zone or the label is inheritable with a sufficiently high probability.
