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Under-connected and over-connected networks

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Author Info

  • Berno Buechel

    () (Institute of Mathematical Economics, Bielefeld University)

  • Tim Hellmann

    () (Institute of Mathematical Economics, Bielefeld University)

Abstract

Since the seminal contribution of Jackson & Wolinsky 1996 [A Strategic Model of Social and Economic Networks, JET 71, 44-74] it has been widely acknowledged that the formation of social networks exhibits a general conflict between individual strategic behavior and collective outcome. What has not been studied systematically are the sources of inefficiency. We approach this gap by analyzing the role of positive and negative externalities of link formation. We find general results that relate situations of positive externalities with stable networks that cannot be "too dense" in a well-defined sense, while situations with negative externalities, tend to induce "too dense" networks.

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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-400.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 400.

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Length: 24 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:bie:wpaper:400

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Related research

Keywords: networks; network formation; connections; game theory; externalities; spillovers; stability; efficiency;

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References

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  1. Bloch, Francis & Dutta, Bhaskar, 2005. "Communication Networks with Endogenous Link Strength," The Warwick Economics Research Paper Series (TWERPS) 723, University of Warwick, Department of Economics.
  2. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA.
  3. Subhadip Chakrabarti & Robert P. Gilles, 2005. "Network Potentials," Bonn Econ Discussion Papers bgse28_2005, University of Bonn, Germany.
  4. 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.
  5. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, 05.
  6. Bloch, Francis & Jackson, Matthew, 2004. "The Formation of Networks with Transfers among Players," Working Papers 1194, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Antoni Calvó-Armengol & Rahmi Ilkiliç, 2005. "Pairwise-Stability and Nash Equilibria in Network Formation," Working Papers 2005.34, Fondazione Eni Enrico Mattei.
  8. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, 08.
  9. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  10. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  11. repec:rne:rneart:v:3:y:2004:i:1:p:19-41 is not listed on IDEAS
  12. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November.
  13. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  14. Michael Kosfeld, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, De Gruyter, vol. 3(1), pages 2.
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Citations

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Cited by:
  1. Berno Buechel & Tim Hellmann, 2012. "Under-connected and over-connected networks: the role of externalities in strategic network formation," Review of Economic Design, Springer, vol. 16(1), pages 71-87, March.
  2. Tim Hellmann & Mathias Staudigl, 2012. "Evolution of Social networks," Working Papers 470, Bielefeld University, Center for Mathematical Economics.

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