Strategic tie formation for long-term exchange relations

Abstract

Theory and empirical research have established that repeated interactions foster cooperation in social dilemmas. These effects of repeated interactions are meanwhile well known. Given these effects, actors have incentives for strategic tie formation in social dilemmas: they have incentives to establish long-term relations involving repeated interactions. Perhaps surprisingly, models accounting for strategic tie formation are scarce. We introduce and analyze a new game-theoretic model that captures the well-known effects of repeated interactions, while simultaneously endogenizing the formation of long-term relations. We assume strict game-theoretic rationality as well as self-regarding preferences. We highlight the commitment feature of tie formation: through establishing a long-term relation, at cost, actors ensure that they would suffer themselves from future sanctions of own opportunism. This allows for mutually beneficial cooperation in the first place. Some extensions of the model are discussed.