Networks of Relations

We model networks of relational (or implicit)contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model, relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable subnetworks inhibit more valuable larger networks.Networks; Relational Contracts; Peering; Indirect Multimarket Contact; Information transmission; Social Capital.

The Impact of Business Networking and Internet Adoption on SME performance in Sri Lanka

Many scholars have identified the importance of the Small and Medium Enterprises (SMEs) in order to achieve a sustainable economic growth in developing countries. Practitioners and the governments in such countries have also taken steps towards strengthening the sector with the vision of sustainable economic growth yielding from the SME sector. The objective of the journal article is to identify and verify the contribution by Business Networking and Internet based ICT adoption in strengthening the performance of the SME sector. Building up alliances and the usage of new technology is deemed be vital factors in supporting the growth of SMEs. This paper flows through an analysis of the most recent literatures on the topic to construct a conceptual framework that is proposed to be utilized in the future research work together with the findings of model being empirically tested in Sri Lanka to validate the relevance of the proposed model to developing countries such as Sri Lanka. The paper also verifies the findings using statistical analysis of the data collected from a sample of SMEs in Sri Lanka covering all nine provinces. Variables in the model includes constructs of Business Networking; Competition, Necessity, Reciprocity, Stability, Legitimacy, Efficiency and constructs for Internet Adoption are business orientation, benefits, new work practice adoptability, ICT costs and  complexity. Keywords: Business Networking, Internet adoption, ICT, SME Performanc

Advertisement-financed credit ratings

This paper investigates the incentives of a credit rating agency (CRA) to generate accurate ratings under an advertisement-based business model. To this end, we study a two-period endogenous reputation model in which a CRA can increase the precision of its ratings by exerting effort. The CRA receives a revenue not from rating fees, as is standard in the literature, but through online advertising. We show that the advertisement-based business model provides sufficient incentives for the CRA to improve the precision of signals at intermediate levels of reputation. Furthermore, we identify conditions under which truthful reporting is incentive compatible. © 2021, The Author(s)

Community Structure and Market Outcomes: A Repeated Games in Networks Approach

Consider a large market with asymmetric information, in which sellers choose whether to cooperate or deviate and ?cheat?their buyers, and buyers decide whether to re-purchase from di¤erent sellers. We model active trade relationships as links in a buyer-seller network and suggest a framework for studying repeated games in such networks. In our framework, buyers and sellers have rich yet incomplete knowledge of the network structure; allowing us to derive meaningful conditions that determine whether a network is consistent with trade and cooperation between every buyer and seller that are connected. We show that three network features reduce the minimal discount factor necessary for sustaining cooperation: moderate competition, sparseness, and segregation. We ? nd that the incentive constraints rule out networks that maximize the volume of trade and that the constrained trade maximizing networks are in between ?old world? segregated and sparse networks, and a ?global market?Buyer-Seller networks; repeated games; moral hazard;asymmetric information; trust; cooperation; institutions

Does virtuous circle between social capital and CSR exist? A “network of games” model and some empirical evidence

Social capital and corporate social responsibility (CSR) have received increasing attention in research on the role that elements such as trust, trustworthiness and social norms of reciprocity and cooperation may have in promoting socio-economic development. Although social capital and CSR seem to have features in common, their relationship has not yet been analysed in depth. This paper investigates the idea of a virtuous circle between the level of social capital and the implementation of CSR practices that fosters the creation of cooperative networks between the firm and all its stakeholders. By using both a theoretical approach developed by considering tools of network analysis and psychological game theory and an empirical approach based on original evidence from three case studies, this study shows the role that cognitive social capital (understood as a disposition to conform with ethical principles of cooperation) and the adoption of CSR practices may have in promoting the emergence of sustainable networks of relations between the firm and all its stakeholders (structural social capital).Social capital, Corporate Social Responsibility, Social norms, Network, Cooperation, Trust

A game theory analysis of trust and social capital in sustainable supply chain management

We consider the motivations of a customer-facing focal firm in a supply network regarding a choice between options for production methods and project direction. One option is purely economic, but with a negative social impact, while the other is a socially responsible alternative that entails a lower rate of economic return. In our game-theoretic analysis, the focal firm faces twin pressures: external pressure from its customers (who favour the pro-social option), and internal pressure from its network partners. After choosing the option for the project direction, all of the partners exert value-creating efforts: hence multi-sided moral hazard problems may exist in the form of effort-shirking. Social capital and trust within the network is enhanced by the choice of the social option, which mitigates the effort-shirking problem. Our analysis demonstrates that customer pressure and network social capital combine, and are substitutes, in inducing the focal firm to choose the pro-social option

Modeling Cognitive Social Capital and Corporate Social Responsibility (CSR) as Preconditions for Sustainable Networks of Relations

The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle between the level of SC and the implementation of CSR practices that favours the creation of cooperative networks between the firm and all its stakeholders by promoting the spread of social norms of trust, trustworthiness and cooperation. Following the literature on SC that stresses its multidimensional character (e.g. Paldam 2000), we consider two dimensions of this notion. Starting from the distinction introduced by Uphoff (1999), we take into account a cognitive and a structural idea of SC. The first one essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents.With regard to the concept of CSR, we adopt a contractarian approach and consider CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm's stakeholders. Among stakeholders, we distinguish between strong and weak stakeholders. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. They are, for example, skilled workers or institutional investors. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them. They are, for example, unskilled workers. By using the tools of psychological game theory, the paper shows the role of cognitive social capital and the adoption of CSR practices in promoting the emergence of social norms of trust, trustworthiness and cooperation which favour the creation of cooperative networks between the firm and all its stakeholders (structural social capital). In particular, we show that: a) the level of cognitive SC plays a key role in inducing the firm to adopt and observe CSR practices that respect all the stakeholders; b) the decision of adopting formal instruments of CSR contributes to create cognitive SC that is endogenously determined in the model; c) the level of cognitive SC and the decision of adopting CSR practices creates structural SC in terms of a long term relationship between the firm and the weak and strong stakeholders.

Relational Contracts with Subjective Peer Evaluations

We study optimal contracting in a setting where a firm repeatedly interacts with multiple workers, and can compensate them based on publicly available performance signals as well as privately reported peer evaluations. If the evaluation and the effort provision are done by different workers (as in a supervisor/agent hierarchy), we show that, using both the private and public signals, the first best can be achieved even in a static setting. However, if each worker is required to both exert effort and report on his co-worker’s performance (as in a team setting), the worker’s effort incentives cannot be decoupled from his truth-telling incentives. This makes the optimal static contract inefficient and relational contracts based on the public signals increase efficiency. In the optimal contract, it may be optimal to ignore signals that are informative of the worker’s effort