Social Norms, Local Interaction, and Neighborhood Planning

34 Pages Posted: 22 Aug 2000

See all articles by Roger Lagunoff

Roger Lagunoff

Georgetown University - Department of Economics

Matthew Haag

University of Warwick - Department of Economics

Date Written: July 11, 2000


This paper examines optimal social linkage when each individual's repeated interaction with each of his neighbors creates spillovers. Each individual's discount factor is randomly determined. A planner chooses a local interaction network or neighborhood design before the discount factors are realized. Each individual then plays a repeated Prisoner's Dilemma game with his neighbors. A local trigger strategy equilibrium (LTSE) describes an equilibrium in which each individual conditions his cooperation on the cooperation of at least one "acceptable" group of neighbors. Our main results demonstrate a basic tradeoff in the design problem between suboptimal punishment and social conflict. Potentially suboptimal punishment arises in designs with local interactions since in this case monitoring is imperfect. Due to heterogeneity of discount factors, however, greater social conflict may arise in more connected networks. When residents' discount factors are known to the planner, the optimal design exhibits a cooperative "core" and an uncooperative "fringe." Uncooperative (impatient) types are connected to cooperative ones who tolerate their free riding so that social conflict is kept to a minimum. By contrast, when residents' discount factors are hid, the optimal design partitions individuals into maximally connected cliques (e.g., cul-de-sacs). Optimal clique size increases the more patient an individual is likely to be. Finally, if types are correlated, then incomplete graphs with small overlap (e.g., grids) are possible.

Note: While the electronic paper may appear difficult to view when downloaded, it prints well and does not contain font errors.

Keywords: Repeated Games, Local Interaction, Social Norms, Neighborhood Design, Local Trigger Strategy, Spatial Design

JEL Classification: C7, D62, D7

Suggested Citation

Lagunoff, Roger and Haag, Matthew, Social Norms, Local Interaction, and Neighborhood Planning (July 11, 2000). Available at SSRN: or

Roger Lagunoff (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-1510 (Phone)
202-687-6102 (Fax)

Matthew Haag

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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