Moral hazard : complex exchange ties in embedded networks

Abstract

Network form of economic organization is subtle compared to markets and hierarchies, due to the importance or social interactions. Based on a literature review we establish complex exchange ties; a set of behavioral patterns decisive in network form of economic organization. Further, an agency problem where complex exchange ties are implemented is analyzed. We discuss the effects of complex exchange ties as both preferences and external motivations. We find that under some circumstances one can reach improved second best outcomes. It becomes harder to improve outcomes as the social structure become more complex, however.