IDEAS home Printed from
   My bibliography  Save this article

Social Norms, Local Interaction, And Neighborhood Planning


  • Matthew Haag
  • Roger Lagunoff


This article examines optimal social linkage when each individual's repeated interaction with each of his neighbors creates spillovers. Each individual's discount factor is randomly determined. A planner chooses a local interaction network or "neighborhood design" before the discount factors are realized. Each individual then plays a repeated Prisoner's Dilemma game with his neighbors. A "local trigger strategy equilibrium (LTSE)" describes an equilibrium in which each individual conditions his cooperation on the cooperation of at least one "acceptable" group of neighbors. Our main results demonstrate a basic trade-off in the design problem between suboptimal punishment and social conflict. Potentially suboptimal punishment arises in designs with local interactions since in this case monitoring is imperfect. Owing to the heterogeneity of discount factors, however, greater social conflict may arise in more connected networks. When individuals' discount factors are known to the planner, the optimal design exhibits a cooperative "core" and an uncooperative "fringe.""Uncooperative" (impatient) types are connected to cooperative ones who tolerate their free riding so that social conflict is kept to a minimum. By contrast, when the planner knows only the ex ante distribution over individual discount factors, then in some cases the optimal design partitions individuals into maximally connected "cliques" (e.g., cul-de-sacs), whereas in other cases incomplete graphs with small overlap (e.g., grids) are possible. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • 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, February.
  • Handle: RePEc:ier:iecrev:v:47:y:2006:i:1:p:265-296

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    1. Kyle Bagwell & Robert W. Staiger, 1999. "Regionalism and Multilateral Tariff Co-operation," International Economic Association Series, in: John Piggott & Alan Woodland (ed.), International Trade Policy and the Pacific Rim, chapter 7, pages 157-190, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nuno Limão & Marcelo Olarreaga, 2018. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 15, pages 403-426, World Scientific Publishing Co. Pte. Ltd..
    2. Chuc Dinh Nguyen & Kazunobu Hayakawa, 2024. "The Substitution Effect of Preferential Tariffs on Nontariff Measures: Evidence from Vietnam," The Developing Economies, Institute of Developing Economies, vol. 62(1), pages 87-103, March.
    3. Ornelas, Emanuel & Tovar, Patricia, 2022. "Intra-bloc tariffs and preferential margins in trade agreements," Journal of International Economics, Elsevier, vol. 138(C).
    4. Caroline L. Freund, 1998. "Multilateralism and the endogenous formation of PTAs," International Finance Discussion Papers 614, Board of Governors of the Federal Reserve System (U.S.).
    5. David Tsirekidze, 2021. "Global supply chains, trade agreements and rules of origin," The World Economy, Wiley Blackwell, vol. 44(11), pages 3111-3140, November.
    6. Kamal Saggi & Halis Murat Yildiz, 2018. "Bilateralism, multilateralism, and the quest for global free trade," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 7, pages 156-167, World Scientific Publishing Co. Pte. Ltd..
    7. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    8. Takumi Naito, 2021. "Trade diversion is reversed in the long run," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 202-219, January.
    9. Prusa, Thomas J. & Teh, Robert & Zhu, Min, 2022. "PTAs and the incidence of antidumping disputes," Journal of International Economics, Elsevier, vol. 138(C).
    10. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    11. Calvo-Pardo, Hector & Freund, Caroline & Ornelas, Emanuel, 2009. "The ASEAN free trade agreement : impact on trade flows and external trade barriers," Policy Research Working Paper Series 4960, The World Bank.
    12. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    13. Akihiko Yanase & Hiroshi Kurata, 2022. "Domestic product standards, harmonization, and free trade agreements," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(3), pages 855-885, August.
    14. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1531-1575.
    15. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    16. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April.
    17. Andreas Lendle, 2007. "The ASEAN Free Trade Agreement - Building Bloc or Stumbling Bloc for Multilateral Trade Liberalization?," IHEID Working Papers 23-2007, Economics Section, The Graduate Institute of International Studies.
    18. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    19. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    20. Huria, Sugandha, 2020. "Gains from Free Trade Agreements: A Theoretical Analysis," MPRA Paper 109815, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D7 - Microeconomics - - Analysis of Collective Decision-Making


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:47:y:2006:i:1:p:265-296. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or the person in charge (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.