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Experiments with network formation

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Author Info
Corbae, Dean
Duffy, John

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Abstract

We examine how groups of agents form trading networks in the presence of idiosyncratic risk and the possibility of contagion. Specifically, four agents play a two-stage finite repeated game. In the first stage, the network structure is endogenously determined through a non-cooperative proposal game. In the second stage, agents play multiple rounds of a coordination game against all of their chosen [`]neighbors' after the realization of a payoff relevant shock. While parsimonious, our four agent environment is rich enough to capture all of the important interaction structures in the networks literature: bilateral (marriage), local interaction, star, and uniform matching. Consistent with our theory, marriage networks are the most frequent and stable network structures in our experiments. We find that payoff efficiency is around 90 percent of the ex ante, payoff dominant strategies and the distribution of network structures is significantly different from that which would result from random play.

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File URL: http://www.sciencedirect.com/science/article/B6WFW-4R3C079-1/2/a9be8c594d56fb8dc4cc7b9a4756ea09
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Publisher Info
Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 64 (2008)
Issue (Month): 1 (September)
Pages: 81-120
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Handle: RePEc:eee:gamebe:v:64:y:2008:i:1:p:81-120

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

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Related research
Keywords: Networks Contagion Coordination Stability Experimental economics;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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    Other versions:
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Duffy & Dean Corbae, 2006. "Experiments with Network Formation," Working Papers 292, University of Pittsburgh, Department of Economics, revised Aug 2007. [Downloadable!]
    Other versions:
  2. Huck, Steffen & Ruchala, Gabriele K. & Tyran, Jean-Robert, 2006. "Competition Fosters Trust," CEPR Discussion Papers 6009, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Falk, Armin & Kosfeld, Michael, 2003. "It's All About Connections: Evidence on Network Formation," CEPR Discussion Papers 3970, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Harmsen-van Hout, Marjolein J.W. & Dellaert, Benedict G.C. & Herings, P. Jean-Jacques, 2008. "Behavorial Effects in Individual Decisions of Network Formation," Research Memoranda 019, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  5. Yaron Leitner, 2004. "Financial networks: contagion, commitment, and private sector bailouts," Working Papers 02-9, Federal Reserve Bank of Philadelphia. [Downloadable!]
  6. Pablo Brañas-Garza & Ramón Cobo-Reyes & Natalia Jiménez & Giovanni Ponti, 2005. "An experimental device to elicit social networks," ThE Papers 05/19, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
  7. Goeree,Jacob K. & Riedl,Arno & Ule,Aljaz, 2005. "In Search of Stars: Network Formation among Heterogeneous Agents," Research Memoranda 032, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  8. Zekeriya Eser & Joe Peek, 2006. "Reciprocity and Network Coordination: Evidence from Japanese Banks," Hi-Stat Discussion Paper Series d05-157, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  9. Berninghaus, Siegfried K. & Ehrhart, Karl-Martin & Ott, Marion, 2008. "Myopically Forward-Looking Agents in a Network Formation Game: Theory and Experimental Evidence," Sonderforschungsbereich 504 Publications 08-02, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  10. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  11. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA. [Downloadable!]
  12. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Mar 2008. [Downloadable!]
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    Other versions:
  14. Berninghaus, Siegfried K. & Ehrhart, Karl-Martin & Ott, Marion & Vogt, Bodo, 2004. "Searching for "Stars" - Recent Experimental Results on Network Formation -," Sonderforschungsbereich 504 Publications 04-34, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  16. Berninghaus, Siegfried K. & Ehrhart, Karl-Martin & Ott, Marion, 2005. "A Network Experiment in Continuous Time:," Sonderforschungsbereich 504 Publications 05-02, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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