Network Formation

I study a network based mechanism of norm enforcement in a community where agents play a Prisoner’s Dilemma with changing partners. Agents may choose a number of close friends. Communication to close friends within the network enforces cooperation. In a world with noiseless communication, it is optimal that each agent has close contacts to all other network members. Moreover, it is optimal to have a huge network size. If communication is noisy a lower number of close contacts is optimal. As the number of network members gets large and network members receive noisy information from all network members, norm enforcement fails. JEL Classification Numbers:

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