Seeking Relationship Support: Strategic network formation and robust cooperation

With Xu Tan

Abstract: We study cooperation on social networks with private monitoring and communication. For arbitrary networks, we construct a class of equilibria that attain high cooperation on all supported links, in a way that is robust to social contagion, bilaterally renegotiation proof, and in which players need only local information about the network. In these equilibria, guilty players exert high effort for their innocent partners, and are willing to do so because they are compensated for their effort costs. Anticipating cooperation, players in a network formation game with random opportunities to form links will strategically form a network with realistic “small worlds” properties, including high “support” but relatively low clustering.

Draft available on request