Networks of Relations and Social Capital
SSE/EFI Economics and Finance Working Paper No. 570
46 Pages Posted: 6 May 2005
Date Written: May 5, 2005
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 subnetworks inhibit more valuable larger networks. The model provides formal definitions for individual and communities' "social capital" in the spirit of Coleman and Putnam.
Keywords: Networks, Relational Contracts, Implicit Contracts, Industrial Districts, Indirect Multimarket Contact, Cooperation, Collusion, Social Capital, Social Relations, Embeddedness, End-Network Effect, Peering Agreements
JEL Classification: L13, L29, D23, D43, O17
Suggested Citation: Suggested Citation