Formation of Social Capital: An Experiment

Working paper316 KB

Date Published:

December 2002


We study the formation of social capital in an environment where specialized agents have frequent diverse needs. This limits the potential of purely bilateral cooperation because the interaction frequency between any two particular agents is low. Such interactions usually invite defection by both sides unless agents are altruistic, or there exist information aggregation institutions that facilitate the use of group punishments. In a companion paper Gentzkow and Mobius (2002) develop a theory of how agents can cooperate even in a limited information environment as long as they can relay requests for help. This mechanism creates networks with long-term relationships which are continuously recombined to satisfy short-term needs. We test the theoretical predictions by conducting an experiment with two treatments: in the first treatment, agents can only utilize direct ‘favors’ while the second treatment adds the ability to provide indirect ‘favors’ as well. Our results help us understand how agents form and sustain weak links.

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Last updated on 04/29/2018