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Trust in Cohesive Communities

Author

Listed:
  • Felipe Balmaceda

    (Facultad de Economía y Empresa, Universidad Diego Portales)

  • Juan Escobar

    (Departamento de Ingenieria Industrial, Universidad de Chile)

Abstract

This paper investigates the social structures that maximize trust and cooperation when agreements are implicitly enforced. We study a repeated trust game in which the social network determines the information transmission technology. We show that cohesive communities, modeled as social networks of complete components, emerge as the optimal community design. Cohesive communities generate some degree of common knowledge of transpired play that allows players to coordinate their punishments and, as a result, yield relatively high equilibrium payo s. Our results provide an economic rationale for the commonly argued optimality of cohesive social networks.

Suggested Citation

  • Felipe Balmaceda & Juan Escobar, 2013. "Trust in Cohesive Communities," Working Papers 40, Facultad de Economía y Empresa, Universidad Diego Portales.
    • Handle: RePEc:ptl:wpaper:40
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    3. Levine, David K. & Modica, Salvatore, 2016. "Peer discipline and incentives within groups," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 19-30.
    4. Mitev, Ariel & Bauer, András & Gáti, Mirkó, 2019. "A személyes értékesítők hálózatépítési tevékenysége [Networking activities of salespersons]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 95-113.
    5. Eleonora Patacchini & Edoardo Rainone, 2014. "The Word on Banking - Social Ties, Trust, and the Adoption of Financial Products," EIEF Working Papers Series 1404, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2014.
    6. Oguzhan Celebi, 2023. "Substitutability in Favor Exchange," Papers 2309.10749, arXiv.org.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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