Networks of Relations and Word-of-Mouth Communication
27 Pages Posted: 22 Jun 2010
Date Written: April 21, 2010
We study networks of relations – groups of agents linked by several cooperative relationships – exploring equilibrium conditions under different network configurations and information structures. Relationships are the links through which soft information can flow, and the value of a network lies in its ability to enforce agreements that could not be sustained without the information and sanctioning power provided by other network members. The model explains why network closure is important; why stable subnetworks may inhibit more valuable larger networks; and why information flows and action choices cannot be analyzed separately. Contagion strategies are suboptimal here, as they inhibit information transmission, delaying punishments.
Keywords: cooperation, collusion, communication, community enforcement, contagion, soft information, private monitoring, multimarket contact, repeated games, relational contracts, reputation, rumors, social networks, social capital
JEL Classification: C73, D83, D85, Z13
Suggested Citation: Suggested Citation