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Enforcing Cooperation in Networked Societies

David Miller and S. Nageeb Ali ()

No 115, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: We endogenize social network formation and collective enforcement using a model in which players interact bilaterally and repeatedly along costly links. Cooperation is supported by the threat of collective punishments that spread through the network. Optimal networks are attainable in equilibrium. When the society is homogeneous, the optimal network consists of many separate cliques. Introducing heterogeneous match quality gives rise to more realistic ”small worlds” networks, with connectedness, small distances, and high clustering.

Date: 2009
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