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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. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers, Bielefeld University, Center for Mathematical Economics 395, Bielefeld University, Center for Mathematical Economics.
  2. Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer, Springer, vol. 34(3), pages 305-318, October.
  3. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, 05.
  4. Antoni Calvó-Armengol & Rahmi Ilkiliç, 2005. "Pairwise-Stability and Nash Equilibria in Network Formation," Working Papers, Fondazione Eni Enrico Mattei 2005.34, Fondazione Eni Enrico Mattei.
  5. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 44-74, October.
  6. Bloch, Francis & Dutta, Bhaskar, 2005. "Communication Networks with Endogenous Link Strength," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 723, University of Warwick, Department of Economics.
  7. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics, EconWPA 0211006, EconWPA.
  8. repec:rne:rneart:v:3:y:2004:i:1:p:19-41 is not listed on IDEAS
  9. Kosfeld Michael, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, De Gruyter, De Gruyter, vol. 3(1), pages 1-23, March.
  10. Subhadip Chakrabarti & Robert P. Gilles, 2005. "Network Potentials," Bonn Econ Discussion Papers, University of Bonn, Germany bgse28_2005, University of Bonn, Germany.
  11. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, Springer, vol. 34(3), pages 319-349, October.
  12. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, Elsevier, vol. 133(1), pages 83-110, March.
  13. Berno Buechel & Tim Hellmann, 2012. "Under-connected and over-connected networks: the role of externalities in strategic network formation," Review of Economic Design, Springer, Springer, vol. 16(1), pages 71-87, March.
  14. Tim Hellmann, 2009. "Convexity and Complementarity in Network Formation: Implications for the Structure of Pairwise Stable Networks," Working Papers, Bielefeld University, Center for Mathematical Economics 423, Bielefeld University, Center for Mathematical Economics.
  15. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 76(2), pages 322-344, October.
  16. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, 08.
  17. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  18. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 137(1), pages 460-492, November.
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Citations

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Cited by:
  1. Philipp Möhlmeier & Agnieszka Rusinowska & Emily Tanimura, 2013. "A degree-distance-based connections model with negative and positive externalities," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 13040, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Hellmann, Tim & Staudigl, Mathias, 2014. "Evolution of social networks," European Journal of Operational Research, Elsevier, Elsevier, vol. 234(3), pages 583-596.
  3. Berno Buechel & Tim Hellmann, 2008. "Under-connected and over-connected networks," Working Papers, Bielefeld University, Center for Mathematical Economics 400, Bielefeld University, Center for Mathematical Economics.
  4. Tim Hellmann, 2013. "On the existence and uniqueness of pairwise stable networks," International Journal of Game Theory, Springer, Springer, vol. 42(1), pages 211-237, February.
  5. König, Michael D. & Battiston, Stefano & Napoletano, Mauro & Schweitzer, Frank, 2012. "The efficiency and stability of R&D networks," Games and Economic Behavior, Elsevier, Elsevier, vol. 75(2), pages 694-713.

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