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Under-connected and over-connected networks

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

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References

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  1. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  2. Subhadip Chakrabarti & Robert Gilles, 2007. "Network potentials," Review of Economic Design, Springer, vol. 11(1), pages 13-52, June.
  3. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA.
  5. 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.
  6. repec:rne:rneart:v:3:y:2004:i:1:p:19-41 is not listed on IDEAS
  7. Paul Belleflamme & Francis Bloch, 2001. "Market Sharing Agreements and Collusive Networks," Working Papers 443, Queen Mary, University of London, School of Economics and Finance.
  8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  9. 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.
  10. Berno Buechel & Tim Hellmann, 2008. "Under-connected and over-connected networks," Working Papers 400, Bielefeld University, Center for Mathematical Economics.
  11. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  12. Antoni Calvó-Armengol & Rahmi Ilkiliç, 2004. "Pairwise-Stability and Nash Equilibria in Network Formation," Working Papers 182, Barcelona Graduate School of Economics.
  13. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  14. Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer, vol. 34(3), pages 305-318, October.
  15. Tim Hellmann, 2009. "Convexity and Complementarity in Network Formation: Implications for the Structure of Pairwise Stable Networks," Working Papers 423, Bielefeld University, Center for Mathematical Economics.
  16. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November.
  17. 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.
  18. Kosfeld Michael, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-23, March.
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Citations

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Cited by:
  1. Tim Hellmann & Berno Buechel, 2009. "Under-connected and Over-connected Networks," Working Papers 2009.38, Fondazione Eni Enrico Mattei.
  2. Philipp Möhlmeier & Agnieszka Rusinowska & Emily Tanimura, 2013. "A degree-distance-based connections model with negative and positive externalities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00825266, HAL.
  3. Tim Hellmann & Mathias Staudigl, 2012. "Evolution of Social networks," Working Papers 470, Bielefeld University, Center for Mathematical Economics.
  4. König, Michael D. & Battiston, Stefano & Napoletano, Mauro & Schweitzer, Frank, 2012. "The efficiency and stability of R&D networks," Games and Economic Behavior, Elsevier, vol. 75(2), pages 694-713.
  5. Tim Hellmann, 2013. "On the existence and uniqueness of pairwise stable networks," International Journal of Game Theory, Springer, vol. 42(1), pages 211-237, February.

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