DP5078 Networks of Relations and Social Capital

Author(s): Steffen Lippert, Giancarlo Spagnolo
Publication Date: May 2005
Keyword(s): collusion, cooperation, embeddedness, end-network effect, implicit contracts, indirect multimarket contact, industrial districts, networks, peering agreements, relational contracts, social capital, social relations
JEL(s): D23, D43, L13, L29, O17
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5078

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.