Exploitation and Cooperation in Networks
AbstractA fundamental question in social sciences is how trust emerges. We provide an answer which relies on the formation of social and economic relationships. We argue that behind trust lies the fact that individuals invest in connections taking into account the potential externalities networks produce. Once social ties are in place, these externalities shape the individuals' incentives to behave efficiently in their interactions and thereby efficient social norms are sustained. We also show that the individual's incentives depend on the architecture of the network as well as on the position of the individual within the network. In particular, when an efficient interaction requires players to mutually cooperate, efficient social norms are easily sustained in symmetric networks. By contrast, when an efficient interaction requires players to play asymmetrically (one cooperates and the other free-rides), efficient social norms are best sustained in fully centralized architectures. We interpret these results indicating that a structural analysis is important to understand how individuals' incentives are shaped in many strategic contexts.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-076/1.
Date of creation: 08 Jul 2004
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Repeated games; networks; social norms;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-23 (All new papers)
- NEP-CBE-2004-08-23 (Cognitive & Behavioural Economics)
- NEP-EVO-2004-08-23 (Evolutionary Economics)
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