Sunday, May 7, 2006
As everybody knows, parties in contractual relationships rely not merely on legal enforcement mechanisms, but on a range of sanctions that can be brought to bear on parties who are not performing. A new paper studying this is Networks of Relations and Social Capital by Steffen Lippert (Toulouse 1-GREMAQ) and Giancarlo Spagnolo (Stockholm-Economics). Here's the abstract:
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.