What is it about?
This article presents a comparative institutional analysis of formal and informal mechanisms that impact cooperation outcomes, which are modeled as prisoner's dilemma (PD) games. Formal mechanisms include public enforcement rules that apply to all interactions. Using a "game on networks" conceptual perspective, the article advances the notion of "strategic embeddedness" to model the impact of Informal mechanisms that rely on existing social network connections. Strategic embeddedness alters the potential cooperative behavior of otherwise identical agents. To determine aggregate outcomes for a society, the article introduces several concepts to capture the value of overall network structures. Interestingly, complete networks--where all agents are connected to one another--do not produce any value. Some intermediate network structures are more or less valuable and/or efficient.
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Why is it important?
Scholars and practitioners commonly believe that informal institutions mediated by social networks can substitute or improve upon more formal institutions, a perspective that is commonly depicted as relational governance. This article demonstrates that those beliefs cannot hold under general conditions: there are limits to the ability of informal connections to facilitate cooperation. In fact, the "rule of law" manifested in public enforcement institutions can be superior to more informal mechanisms that rely on networks. A key determinant of the superiority of informal networks or rule of law is the actual network structure that underlies social interactions.
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This page is a summary of: Strategic embeddedness and the microfoundations of collective action: A comparative institutional analysis of the rule of law and informal institutions in cooperation games, Journal of Theoretical Politics, June 2015, SAGE Publications, DOI: 10.1177/0951629815586879.
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