Building up social capital in a changing world
This paper models the dynamic process through which a large society may succeed in building up its "social capital" by establishing a stable and dense pattern of interaction among its members. In the model, agents interact according to a collection of (idyosincratic) infinitely repeated Prisoner's Dilemma played on the existing social network. This network not only specifies the playing partners but, crucially, also determines how relevant strategic information diffuses or new cooperation opportunities are found. Over time, the underlying payoffs randomly change, i.e. display some "volatility". In response to it, agents react by creating new links and removing others. This combines into a complex but ergodic dynamic process, whose analysis is undertaken in different ways. First, we rely on its ergodicity to "compute" numerically its long-run regularities. Second, we use mean-field approximations to derive analytical results. Both routes are found in accord and also complementary. The long-run dynamics of the process sharply depends on environmental volatility, displaying the following features: (a) Only if volatility is not too high can the society sustain a dense social network and thus attain a large average payoff. (b) The social architecture endogenously responds to increased volatility by becoming more cohesive. (c) Network-based strategic effects are an essential buffer that preclude the abrupt collapse of the social network in the face of growing volatility. These conclusions are largely in tune with the points stressed in the social-capital literature.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John McMillan & Christopher Woodruff, 1998.
"Interfirm Relationships and Informal Credit in Vietnam,"
William Davidson Institute Working Papers Series
132, William Davidson Institute at the University of Michigan.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
- McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
- Ellison, Glenn, 1993.
"Learning, Local Interaction, and Coordination,"
Econometric Society, vol. 61(5), pages 1047-1071, September.
- Matthew Haag & Roger Lagunoff, 2000.
"social Norms, Local Interaction and Neighborhood Planning,"
Levine's Working Paper Archive
2049, David K. Levine.
- Matthew Haag & Roger Lagunoff, 2006. "Social Norms, Local Interaction, And Neighborhood Planning ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 265-296, 02.
- Matthew Haag & Roger Lagunoff, 1999. "Social Norms, Local Interaction, and Neighborhood Planning," Game Theory and Information 9907004, EconWPA.
- Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
- Vega-Redondo, Fernando, 2006.
"Building up social capital in a changing world,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 30(11), pages 2305-2338, November.
- Matthew O. Jackson & Alison Watts, 2000.
"On the Formation of Interaction Networks in Social Coordination Games,"
Econometric Society World Congress 2000 Contributed Papers
0778, Econometric Society.
- Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November.
- Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
- Sanjeev Goyal & Fernando Vega-Redondo, 2003.
"Network Formation and Social Coordination,"
481, Queen Mary University of London, School of Economics and Finance.
- M. Kandori & G. Mailath & R. Rob, 1999.
"Learning, Mutation and Long Run Equilibria in Games,"
Levine's Working Paper Archive
500, David K. Levine.
- Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
- Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
- Manuel Castells (ed.), 2004. "The Network Society," Books, Edward Elgar Publishing, number 3203.
- Rubinstein, Ariel, 1986.
"Finite automata play the repeated prisoner's dilemma,"
Journal of Economic Theory,
Elsevier, vol. 39(1), pages 83-96, June.
- Ariel Rubinstein, 1997. "Finite automata play the repeated prisioners dilemma," Levine's Working Paper Archive 1639, David K. Levine.
- Vadim Radaev, 2002. "Entrepreneurial Strategies and the Structure of Transaction Costs in Russian Business," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 44(12), pages 57-84, April.
- Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 567-588.
- Durlauf,S.N., 1999. "The case "against" social capital," Working papers 29, Wisconsin Madison - Social Systems.
- B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
- Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
- De Weerdt, Joachim, 2002. "Risk-Sharing and Endogenous Network Formation," WIDER Working Paper Series 057, World Institute for Development Economic Research (UNU-WIDER).
- James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:30:y:2006:i:11:p:2305-2338. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.