MIT14_15JF09_lec16

MIT14_15JF09_lec16 - 6.207/14.15: Networks Lecture 16:...

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Unformatted text preview: 6.207/14.15: Networks Lecture 16: Cooperation and Trust in Networks Daron Acemoglu and Asu Ozdaglar MIT November 4, 2009 1 Networks: Lecture 16 Introduction Outline The role of networks in cooperation A model of social norms Cohesion of groups and social norms Trust in networks Reading: Osborne, Chapters 14 and 15. 2 Networks: Lecture 16 Introduction The Role of Social Networks Recall the importance of social contacts in finding jobs. Especially of weak ties (e.g., Granovetter (1973) The Strength of Weak Ties : most people find jobs through acquaintances not close friends. The idea is that recommendations from people you know are more trusted. Similarly, social networks important in starting businesses? Recall that in many developing economies (but also even in societies with very strong institutions), networks of acquaintances and contacts shape business behavior. (e.g., Munshi (2009) Strength in Numbers: A Network-Based Solution to Occupational Traps ). The Indian diamond industry is dominated by a few small subcasts, the Marwaris, the Palanpuris, the Kathiawarisin the same way that Antwerp and New York diamond trade used to be dominated by ultra-Orthodox Jews. 3 Networks: Lecture 16 Introduction Trust in Networks The rise of the Kathiawaris most likely related to their close-knit network. When the Marwaris and the Palanpuris institutionalized their relationship with Antwerp (often opening branches of their firms there). Moreover, over time, lower intermarriage rates for these groups. Network relationships seem to matter less. The Kathiawaris initially a lower, agricultural subcast, some of them working as cutters for the Marwaris and the Palanpuris. Strong network ties, intermarriage rates etc. After the increase in the world supply of rough diamonds in the 1970s (following the opening the Australias Argyle Mines), the Kathiawaris slowly dominate the business. Mutual support, referrals, long-term relationships based on networks. Recall that Munshis argument was that network connections helped the Kathiawaris pull ahead of the richer and more established Marwaris and Palanpuris. 4 Networks: Lecture 16 Introduction Trust in Networks (continued) Perhaps trust is more dicult when the network is larger. The Marwari and the Palanpuri businessmen were suciently more established, so they did not depend on their subcast links, so implicitly reneging on their long-term relationships within their cast would have carried relatively limited costs for them. But if so, then there would be little trust in the network of the Marwaris and the Palanpuris. In contrast, the Kathiawaris strongly depended on their network, so any reneging (or appearance of reneging) would lead to their exclusion from the business community supporting them foreverand this support is very valuable to the Kathiawaris....
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This note was uploaded on 06/12/2010 for the course EECS 6.207J taught by Professor Acemoglu during the Fall '09 term at MIT.

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MIT14_15JF09_lec16 - 6.207/14.15: Networks Lecture 16:...

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