This paper examines optimal social linkage when each individual's repeated interaction with each of his neighbors creates spillovers. Individuals differ across rates of time preference. A planner must choose a local interaction system or neighborhood design before observing the realization of these rates. Given the planner's choice of design and a realization of discount factors, each individual plays a repeated Prisoner's Dilemma game with his neighbors. We introduce the concept of a local trigger strategy equilibrium (LTSE) to describe a stationary sequential equilibrium in which, for any realization of discount factors, each individual conditions his cooperation on the cooperation of at least one "acceptable" group of neighbors. The presence of impatient types implies that some free riding may be tolerated in equilibrium. 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 independently distributed, the optimal design partitions individuals into maximally connected cliques (e.g., cul-de-sacs). In that case, each person's cooperation decision becomes a pure local public good. Finally, if types are correlated, then incomplete graphs with small overlap (e.g., grids) are possible.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory D62 - Microeconomics - - Welfare Economics - - - Externalities D7 - Microeconomics - - Analysis of Collective Decision-Making
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Steffen Lippert & Giancarlo Spagnolo, 2004.
"Networks of Relations,"
Discussion Papers
28, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!]
Other versions:
Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.