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Externalities in Exchange Networks

Author

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  • Jacob Dijkstra

    (Interuniversity Centre for Social Science Theory and Methodology (ICS) in Groningen, the Netherlands, j.dijkstra@rug.nl)

Abstract

The present paper extends the focus of network exchange research to externalities in exchange networks. Externalities of exchange are defined as direct effects on an actor’s utility, of an exchange in which this actor is not involved. Existing theories in the field of network exchange do not inform us on how externalities are predicted to affect behavior in exchange networks. Three prominent theories in the field, core theory, power dependence theory and exchange resistance theory, are extended to exchange networks with externalities, allowing three main conclusions about the expected effects of externalities in exchange networks: externalities (i) change actors’ payoffs, (ii) change the exchange pattern, and (iii) change the power distribution across actors. The investigated theories yield predictions concerning the occurrence and magnitude of these effects. A method is proposed to separate the effect of (i) the network, (ii) the externalities, and (iii) the interaction between network and externalities.

Suggested Citation

  • Jacob Dijkstra, 2009. "Externalities in Exchange Networks," Rationality and Society, , vol. 21(4), pages 395-427, November.
    • Handle: RePEc:sae:ratsoc:v:21:y:2009:i:4:p:395-427
    DOI: 10.1177/1043463109335612
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    References listed on IDEAS

    as
    1. Shapley, Lloyd S & Shubik, Martin, 1969. "On the Core of an Economic System with Externalities," American Economic Review, American Economic Association, vol. 59(4), pages 678-684, Part I Se.
    2. Phillip Bonacich & Elisa Jayne Bienenstock, 1995. "When Rationality Fails," Rationality and Society, , vol. 7(3), pages 293-320, July.
    3. Jacob Dijkstra & Marcel A. L. M. van Assen, 2008. "The Comparison of Four Types of Everyday Interdependencies," Rationality and Society, , vol. 20(1), pages 115-143, February.
    4. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
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    Cited by:

    1. Muñoz-Herrera, Manuel & Dijkstra, Jacob & Flache, Andreas & Wittek, Rafael, 2021. "Collaborative production networks among unequal actors," Network Science, Cambridge University Press, vol. 9(1), pages 1-17, March.
    2. Kenneth A Frank & Yun-Jia Lo & G Geoffrey Booth & Juha-Pekka Kallunki, 2019. "The market dynamics of socially embedded trading," Rationality and Society, , vol. 31(2), pages 152-181, May.

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