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Cooperative networks with robust private monitoring

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  • Mihm, Maximilian
  • Toth, Russell

Abstract

Social networks support cooperative behavior in a variety of social and economic settings. We study cooperative networks that can be formed when payoff and information asymmetries imply that cooperation relies on unverifiable third-party punishments. Under private monitoring, equilibrium predictions can depend on players' beliefs about unobservable behavior, and our results identify the range of equilibrium network outcomes. In particular, when strategies must be robust to beliefs, we show that network structures satisfy a triadic closure property, providing a strategic rationale for the short paths and high clustering observed in many social and economic networks. We illustrate some of the substantive restrictions identified in our results for risk- and information-sharing networks.

Suggested Citation

  • Mihm, Maximilian & Toth, Russell, 2020. "Cooperative networks with robust private monitoring," Journal of Economic Theory, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:jetheo:v:185:y:2020:i:c:s0022053118304290
    DOI: 10.1016/j.jet.2019.104974
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    More about this item

    Keywords

    Belief-free equilibrium; Local monitoring; Networks; Triadic closure;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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