Trust in cohesive communities

Felipe Balmaceda () and Juan Escobar

Journal of Economic Theory, 2017, vol. 170, issue C, 289-318

Abstract: This paper studies which social networks maximize trust and welfare when agreements are implicitly enforced. We study a repeated trust game in which trading opportunities arise exogenously and a social network determines the information each player has. The main contribution of the paper is the characterization of optimal networks under alternative assumptions about how information flows across a network. When a defection is observed only by the victim's connections, cohesive networks are Pareto efficient as they allow players to coordinate their punishments to attain high equilibrium payoffs. In contrast, when a defection is observed by the victim's direct and indirect connections, barely connected networks maximize the number of players that can punish a defection and are therefore efficient.

Keywords: Repeated games; Social networks; Cohesiveness (search for similar items in EconPapers)
JEL-codes: C73 D82 D85 Z13 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Trust in Cohesive Communities (2013)
Working Paper: Trust in Cohesive Communities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:170:y:2017:i:c:p:289-318

DOI: 10.1016/j.jet.2017.05.005

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