Working Paper: CEPR ID: DP5078
Authors: Steffen Lippert; Giancarlo Spagnolo
Abstract: We model networks of relational (or implicit) contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members? sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable sub-networks inhibit more valuable larger networks. The model provides formal definitions for individual and communities? ?social capital? in the spirit of Coleman and Putnam.
Keywords: collusion; cooperation; embeddedness; end-network effect; implicit contracts; indirect multimarket contact; industrial districts; networks; peering agreements; relational contracts; social capital; social relations
JEL Codes: D23; D43; L13; L29; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| different network architectures (D85) | sustainability of cooperative agreements (Q01) |
| circular networks (D85) | sustainability of cooperative agreements (Q01) |
| non-circular networks (D85) | sustainability of cooperative agreements (Q01) |
| ability to transmit information about defections (D83) | cooperation (P13) |
| improved outside options (F16) | cooperation (P13) |
| imperfect information (D83) | stability of larger networks (D85) |