Social Capital and Social Quilts: Network Patterns of Favor Exchange∗

We examine the informal exchange of favors among the members of a society. We characterize the network patterns of interaction that sustain repeated favor exchange. Networks sustainable in renegotiation-proof equilibria have certain inductive critical structures. The networks also satisfying a robustness condition, so that removing a link only results in the loss of favors in a local neighborhood, are social quilts: tree-like unions of completely connected subnetworks of a critical size. Allowing for general heterogeneity in the costs, benefits, and arrival probabilities of favors across individuals, robust networks are such that all links are supported: any pair of individuals exchanging favors must have a common friend. This provides a new measure of the local structure of social networks that contrasts with standard clustering measures. Applying the theory, we examine favor exchange networks in 75 rural villages in southern India. We find that the support of favor links is more than twenty times higher than would arise at random, and significantly higher (beyond the 99.9 percent level) when accounting for the geographic distribution of links. We also find that the villages exhibit significantly higher fractions of supported links in their favor networks than in their purely social networks.