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Network formation with heterogeneous players

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Author Info

  • Galeotti, Andrea
  • Goyal, Sanjeev
  • Kamphorst, Jurjen

Abstract

This paper studies a connections model of network formation in which players are heterogeneous with respect to values as well as the cost of forming links. We start by showing that value heterogeneity is important in determining the level of connectedness of a network, while cost heterogeneity is important in shaping both the level of connectedness as well as the architecture of individual components in a network. We then explore the role of cost heterogeneity in a society which is divided into distinct groups and intra-group links are cheaper as compared to inter-group links. Here we find that inter-connected stars with locally central players are socially efficient as well as dynamically stable. We interpret our results as saying that centrality, center-sponsorship and small diameter are robust features of networks.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 54 (2006)
Issue (Month): 2 (February)
Pages: 353-372

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Handle: RePEc:eee:gamebe:v:54:y:2006:i:2:p:353-372

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Web page: http://www.elsevier.com/locate/inca/622836

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References

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  1. Sanjeev Goyal & Marco van der Leij & Jose Luis Moraga, 2004. "Economics: An Emerging Small World?," Tinbergen Institute Discussion Papers 04-001/1, Tinbergen Institute.
  2. Deroian, Frederic, 2003. "Farsighted strategies in the formation of a communication network," Economics Letters, Elsevier, vol. 80(3), pages 343-349, September.
  3. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Matthew O. Jackson & Bhaskar Dutta, 2000. "original papers : The stability and efficiency of directed communication networks," Review of Economic Design, Springer, vol. 5(3), pages 251-272.
  5. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Venkatesh Bala & Sanjeev Goyal, 2000. "original papers : A strategic analysis of network reliability," Review of Economic Design, Springer, vol. 5(3), pages 205-228.
  7. Falk, Armin & Kosfeld, Michael, 2003. "It's all about Connections: Evidence on Network Formation," IZA Discussion Papers 777, Institute for the Study of Labor (IZA).
  8. Andrea Galeotti & Sanjeev Goyal, 2002. "Network Formation with Heterogeneous Players," Tinbergen Institute Discussion Papers 02-069/1, Tinbergen Institute.
  9. Slikker, M. & Nouweland, C.G.A.M. van den, 1997. "A One-Stage Model of Link Formation and Payoff Division," Discussion Paper 1997-23, Tilburg University, Center for Economic Research.
  10. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  11. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer, vol. 5(3), pages 273-299.
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