Social relations and cooperation in organizations

Abstract

This paper addresses the effects of social relations on cooperation (or collusion) in organizations (or communities). Social and production relations are modeled as separate repeated strategic interactions. “Linking” them – by employing members of the same community or encouraging social interaction between employees – facilitates cooperation in production: (a) because of available “social capital,” the slack of enforcement power present in social relations which may discipline behavior in the workplace; (b) because payoffs from the two relations are substitutes, therefore the linkage endogenously generates social capital; (c) because the linkage generates transfers of “trust”; and (d) it discloses information about agents' situation.