Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 570: Networks of Relations

Giancarlo Spagnolo () and Steffen Lippert ()
Additional contact information
Giancarlo Spagnolo: Stockholm School of Economics, Consip Spa, and CEPR., Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Steffen Lippert: University of Toulouse 1 and University of Mannheim

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.

Keywords: Networks; Relational Contracts; Peering; Indirect Multimarket Contact; Information transmission; Social Capital.

JEL-codes: D23; D43; L13; L29; O17

43 pages, First version: November 27, 2004. Revised: June 4, 2010. Earlier revisions: May 3, 2005.

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