AbstractBuilding upon a long tradition in sociology, economists have recently turned their attention to the analysis of social networks. The present paper adds to this emerging literature by proposing a different approach to social-network formation. As in the model of Jackson and Wolinsky (1996), formation of a link between two individuals requires two-sided investments in the present framework. But in contrast to their approach, where the required investments are exogenously specified and link formation is deterministic, the level of individual investment is a decision variable in the present model and link formation is stochastic. Thus, the probability that a link is formed between two individuals depends on the ``effort" both agents devote to creating the link. These effort levels are chosen noncooperatively via Nash behavior. As in the Jackson-Wolinsky model, indirect links are worth less than direct linkages to other individuals. But, in contrast to their assumption of a smooth benefit decay as link distance increases, the present framework assumes that benefits are zero when more than two links are involved. The model can be viewed as a portrayal of friendship networks. For two individuals to form a friendship, each must exert effort, which could involve inviting the other person to dinner at his house, arranging other types of social outings, or buying gifts on special occasions. Effort creates ``direct" friendships, and the combination of such links leads to ``indirect" friendships. Concretely, a particular individual may invite all of his direct friends to a dinner party at his house, and through socializing with one another, these people enjoy indirect friendships. The paper analyzes the effort externalities that are present in the model, showing the effort levels are universally too low. In addition, the analysis explores the effect of several types of asymmetries on the network structure, as reflected in effort levels and the probability of link formation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 184.
Date of creation: 11 Aug 2004
Date of revision:
Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Other versions of this item:
This paper has been announced in the following NEP Reports:
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.:
- Yannis M. Ioannides & Linda Datcher Loury, 2002.
"Job Information Networks, Neighborhood Effects and Inequality,"
Discussion Papers Series, Department of Economics, Tufts University
0217, Department of Economics, Tufts University.
- Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
- Calvó-Armengol, Antoni & Zenou, Yves, 2003.
"Job Matching, Social Network and Word-of-Mouth Communication,"
IZA Discussion Papers
771, Institute for the Study of Labor (IZA).
- Calvo-Armengol, Antoni & Zenou, Yves, 2005. "Job matching, social network and word-of-mouth communication," Journal of Urban Economics, Elsevier, vol. 57(3), pages 500-522, May.
- Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," CEPR Discussion Papers 2797, C.E.P.R. Discussion Papers.
- Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," Seminar Papers 695, Stockholm University, Institute for International Economic Studies.
- Matthew O. Jackson & Asher Wolinsky, 1995.
"A Strategic Model of Social and Economic Networks,"
1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
- Jackson, Matthew O., 1998.
"The Evolution of Social and Economic Networks,"
1044, California Institute of Technology, Division of the Humanities and Social Sciences.
- Matthew O. Jackson & Alison Watts, 2000.
"On the Formation of Interaction Networks in Social Coordination Games,"
Econometric Society World Congress 2000 Contributed Papers
0778, Econometric Society.
- Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November.
- Helsley, Robert & Zenou, Yves, 2011.
"Social Networks and Interactions in Cities,"
CEPR Discussion Papers
8260, C.E.P.R. Discussion Papers.
- Helsley, Robert W. & Zenou, Yves, 2011. "Social Networks and Interactions in Cities," IZA Discussion Papers 5506, Institute for the Study of Labor (IZA).
- Helsley, Robert & Zenou, Yves, 2011. "Social Networks and Interactions in Cities," Research Papers in Economics 2011:8, Stockholm University, Department of Economics.
- Gilles, R.P. & Chakrabarti, S. & Sarangi, S. & Badasyan, N., 2004. "The Role of Middlemen inEfficient and Strongly Pairwise Stable Networks," Discussion Paper 2004-64, Tilburg University, Center for Economic Research.
- Bloch, Francis & Dutta, Bhaskar, 2009.
"Communication networks with endogenous link strength,"
Games and Economic Behavior,
Elsevier, vol. 66(1), pages 39-56, May.
- Francis Bloch & Bhaskar Dutta, 2008. "Communication networks with endogeneous link strength," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-15, Indian Statistical Institute, New Delhi, India.
- 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.
- Joost Vandenbossche & Thomas Demuynck, 2013.
"Network Formation with Heterogeneous Agents and Absolute Friction,"
Society for Computational Economics, vol. 42(1), pages 23-45, June.
- J. Vandenbossche & T. Demuynck & -, 2010. "Network formation with heterogeneous agents and absolute friction," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/642, Ghent University, Faculty of Economics and Business Administration.
- Konovalov, Alexander, 2014. "Competition and Cooperation in Network Games," Working Papers in Economics 583, University of Gothenburg, Department of Economics.
- Gilles, R.P. & Sarangi, S., 2004. "Social Network Formation with Consent," Discussion Paper 2004-70, Tilburg University, Center for Economic Research.
- Sudipta Sarangi & Aditi Roy, .
"Revisiting Friendship Networks,"
Departmental Working Papers
2009-12, Department of Economics, Louisiana State University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.