Networks of Relations and Word-of-Mouth Communication

27 Pages Posted: 22 Jun 2010

See all articles by Giancarlo Spagnolo

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Steffen Lippert

University of Auckland - Department of Economics

Date Written: April 21, 2010

Abstract

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

Spagnolo, Giancarlo and Lippert, Steffen, Networks of Relations and Word-of-Mouth Communication (April 21, 2010). Available at SSRN: https://ssrn.com/abstract=1628335 or http://dx.doi.org/10.2139/ssrn.1628335

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Steffen Lippert (Contact Author)

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

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