Seeking Relationship Support: Strategic network formation and robust cooperation
With Xu Tan and Harry Kleyer
Abstract: We study cooperation on evolving social networks with private monitoring and communication. A multilateral restitution equilibrium attains high cooperation on links that are supported (contained in triangles), while preserving cooperation between innocent players off the equilibrium path, and remaining invariant to players’ beliefs about the network outside their local neighborhoods. When new players arrive, they strategically form links to players they meet, and seek mutual friends to support cooperation in their relationships. Using data from Banerjee, Chandrasekhar, Duflo and Jackson (2013), we estimate a structural model incorporating survey under-response, and find that both support-seeking and survey under-response are statistically relevant.