Cooperating on networks: inequality and social structure

We analyse how inequality in endowments and social structure jointly affect individuals' ability to cooperate. Individuals repeatedly invest in a local public good ("cooperation'') in an environment that is described by a distribution of endowments and a network of beneficiaries. We measure the cooperativeness of an environment by the minimum discount factor needed to sustain (any) cooperation in equilibrium. We characterise the endowment distribution that maximises cooperativeness for any given network and the corresponding minimum discount factor. The latter is shown to be inversely proportional to the maximal index of the graph describing the network. The corresponding dominant eigenvalue of the adjacency matrix characterises the most cooperative income distribution. Moreover, we show that if an environment maximises cooperativeness (over all income distributions and networks of a certain size), then the network is described by a nested split graph. We further show that this is the same class of graphs that maximise welfare for any given discount factor, and yet, the most cooperative graph need not be equal to the most efficient.