Public policy design and social dilemmas: A social network approach

Economics has recognized the importance of social networks for overcoming social dilemmas but has not yet developed a framework that allows to quantify its importance and define public policies in the presence of social interactions. This paper makes a first step in this direction by analyzing the influence that social networks and the state of a public good or common property resource have on compliance with social norms. The analysis signposts the maximal and minimal influence different types of social networks have for supporting a stable steady-state with full cooperation, thereby allowing policymakers to compare the effectiveness of legal (e.g., fines or subsidies) and informal (e.g., network-oriented) enforcement policies. The study also shows that social networks allow reducing the stringency of enforcement policies. Yet, cooperation is unlikely to prevail if the agents do not perceive the social dilemma as severe. We find that stable steady states where compliers and defectors coexist (partial cooperation) are supported and their stability depends on the type of functions representing social pressure and sanctioning costs. The analytical framework is employed for an empirical study of an aquifer in Spain. It reveals that subsidizing the compliers’ costs of social pressure may impede a stable steady state based on partial cooperation with a large area of attraction.