 SOCIAL NORMS, LOCAL INTERACTION, AND NEIGHBORHOOD PLANNING *Matthew Haag and Roger Lagunoff International Economic Review, 2006, vol. 47, issue 1, 265-296 Abstract: 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. Date: 2006 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ier:iecrev:v:47:y:2006:i:1:p:265-296 Ordering information: This journal article can be ordered from Access Statistics for this article International Economic Review is currently edited by Harold L. Cole More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC. |
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