Economic Activities and Networks of Relatioships

The fundamental question I address in the dissertation is how the behavior of economic agents interacts with networks of relationships which underlie a wide set of economic situations. In Ch. 2, entitled "Decentralized Information Sharing in Oligopoly," I analyze the incentives of firms for information sharing in a decentralized environment when firms face a stochastic demand. In order to do that, I develop a two stage model of strategic network formation, where a cooperative network formation stage is played in the first stage and a noncooperative Bayesian Cournot game is played in the second stage. I derive pure strategy mixed cooperative and noncooperative equilibria that are subgame perfect and stable, and characterize the resulting network structures. Ch. 3, entitled "A War of Attrition in Network Formation," investigates the strategic behavior of agents when they face a decision on the formation of relationships. I apply a war of attrition to the dynamic network formation process when links among agents have characteristics of public goods. Agents are randomly but exogenously matched in each stage. Based on Bala and Goyal's (2000) two-way flow model, I characterize the subgame-perfect equilibrium outcomes and discuss their efficiency. Finally, Ch. 4, entitled "Social Norms and Trust among Strangers," (with Huan Xie) studies the development of trust and reciprocity among strangers in the indefinitely repeated trust game with random matching. If reputation is attached to the community as a whole and if a single defection leads to the destruction of the cooperative social norm through contagious punishments, the cooperative social norm can be sustained by the self-interested community members in the equilibrium. We provide sufficient conditions that support the social norm of trust and reciprocity as a sequential equilibrium.