Cooperation and reputation in dynamic networks*
Chapter 2 introduced a simulation study on coordination problems in dynamic social networks. This chapter introduces another simulation model of social dilemmas in dynamic networks but this time with a different game as the social dilemma— instead of coordination, we now look at cooperation. Dyadic cooperation is one of the building blocks of human societies. Whether this cooperation be colleagues working on a project together, friends providing social support, neighbors providing practical support, or firms involved in R&D collaboration, people interact to produce something they could not have produced alone. In many cases, both parties can benefit from mutual cooperation, but both are also tempted to take advantage of the other party for an even larger benefit. In such cases, cooperation takes the form of the well-known two-person Prisoner's Dilemma (see Figure 3.1). The standard game-theoretic prediction is that actors will not cooperate in such a dilemma. Consequently, a large body of literature has evolved to address the question—under what conditions is cooperation in the Prisoner's Dilemma possible? One major finding is that cooperation is possible (but not guaranteed) when an interaction is repeated. Another mechanism that is often claimed to promote cooperation is embeddedness in social networks. In this chapter, as before, we study what happens if we do not assume that these networks are exogenously fixed ...