Rational Exploitation of the Core by the Periphery? On the Collective (In)efficiency of Endogenous Enforcement of Universal Conditional Cooperation in a Core-Periphery Network

Raub and Weesie (1990) proposed a game theoretical model addressingeffects of network embeddedness on conditional cooperation between two actors.This work showed that network embeddedness can facilitate conditional coopera-tion by reducing uncertainty, in line with a number of follow-up contributions andconsistently with results from other modelling approaches. This research focusedmainly on interactions between two parties embedded in a network. In the presentpaper, I extend a closely related model towardsN-person collective good problems,combining conditional cooperation based on direct monitoring via network ties andobservation of group output in an uncertain environment. The focus is on a maxi-mally simple yet empirically relevant case, a core-periphery network in which onlycore-members can directly observe each other’s contributions to a collective effort,whereas peripheral members only observe a noisy signal indicating aggregated con-tributions. I propose the possibility of a‘rational exploitation of the core by the pe-riphery’. Strategy-profiles in which free-riding of peripheral members is toleratedwhile core-members cooperate conditionally, are not only individually rational butalso payoff-superior to profiles with universal conditional cooperation if uncer-tainty is sufficiently high and the number of peripheral members is sufficiently low