Social interaction and economic organization: Toward an integrative microeconomic model

In the context of increasingly complex economies, with information more and more complicated to handle, social interaction may allow spontaneous co-operation and be more efficient than market or state regulations to overcome co-ordination and information problems. This article provides a theoretical model that compares three “pure forms” of economic organization: state-controlled production, unregulated market, and voluntary organization. We model the behavior of agents who are embedded in a social structure that is characterized by three parameters: the intensity of socialization, the size of individual social space, and the overall level of trust in society. We then study how social interaction parameters influence the relative efficiency of the three different forms of organization.