Chapter 4: Trade Networks and the Strength of Strong Ties

Evidence suggests that, in the presence of imperfect market institutions, individuals devote resources to the establishment of reliable connections to attenuate the frictions that reduce trading and insurance opportunities. In this chapter, the author surveys the relevant literature on strategic formation of networks and use it to study this particular economic situation. A simple model is built to show that the investment in strong ties often, though not always, produces stable configurations that manage to improve upon the imperfections of market institutions.