Seeking Relationship Support: Strategic network formation and robust cooperation

Abstract

We study cooperation on evolving social networks with private monitoring and communication. We introduce a class of multilateral restitution equilibria that attain high cooperation on all supported links, i.e., all links that are in triangles. These equilibria are both robust—preserving high cooperation between innocent players on and off the equilibrium path—and local—invariant to players’ beliefs about the network outside their local neighborhoods. We build a simple network formation model in which new players arrive and form links to players that they randomly meet, they strategically seek out mutual friends to support cooperation in their relationships. Using social network data from Indian villages (Banerjee, Chandrasekhar, Duflo, and Jackson 2013), we structurally estimate a model that incorporates survey under-response, and find that both support-seeking and survey under-response are statistically and economically significant.