The Effect of Network Formation on Cooperation in the Finitely Repeated Prisoner's Dilemma

We study the effect of network formation on cooperation in the finitely repeated prisoner’s dilemma based on the game-theoretical model approach. We suggest the model explaining the effect of endogenous network formation on cooperation. We find a subgame perfect strongly pairwise-Nash equilibrium in which cooperation is achieved by the trigger strategy based on non-random partner selection. Also, in the subgame perfect strongly pairwise-Nash equilibrium, cooperators are completely connected with other cooperators, and defectors are isolated in the network. These results imply “full separation” of cooperators and defectors in the network and “marginalization” of defectors in the network