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Cooperative networks with robust private monitoring

Maximilian Mihm and Russell Toth

Journal of Economic Theory, 2020, vol. 185, issue C

Abstract: Social networks support cooperative behavior in a variety of social and economic settings. We study cooperative networks that can be formed when payoff and information asymmetries imply that cooperation relies on unverifiable third-party punishments. Under private monitoring, equilibrium predictions can depend on players' beliefs about unobservable behavior, and our results identify the range of equilibrium network outcomes. In particular, when strategies must be robust to beliefs, we show that network structures satisfy a triadic closure property, providing a strategic rationale for the short paths and high clustering observed in many social and economic networks. We illustrate some of the substantive restrictions identified in our results for risk- and information-sharing networks.

Keywords: Belief-free equilibrium; Local monitoring; Networks; Triadic closure (search for similar items in EconPapers)
JEL-codes: C73 D83 D85 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jet.2019.104974

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