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The Law of the Few

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  • Andrea Galeotti

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  • Sanjeev Goyal

Abstract

The law of the few refers to the following empirical phenomenon: in social groups a very small subset of individuals invests in collecting information while the rest of the group invests in forming connections with this select few. In many instances, there are no observable differences in characteristics between those who invest in information and those who invest in forming connections. This paper shows that the law of few naturally emerges in environments with identical rational agents. We develop a strategic game in which players have the opportunity to invest in collecting information as well as in investing in bilateral connections with others. We find that every strict equilibrium of this game exhibits the �law of the few�. We also show that this pattern of social differentiations is efficient in some cases.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 636.

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Date of creation: 29 Aug 2007
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Handle: RePEc:esx:essedp:636

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  1. Antoni Calvó-Armengol & Yves Zenou, 2004. "Social Networks And Crime Decisions: The Role Of Social Structure In Facilitating Delinquent Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 939-958, 08.
  2. Glenn W. Harrison & Jack Hirshleifer, 1988. "An Experimental Evaluation of Weakest-Link/Best Shot Models of Public Goods," UCLA Economics Working Papers 473, UCLA Department of Economics.
  3. Sanjeev Goyal, 2007. "Introduction to Connections: An Introduction to the Economics of Networks
    [Connections: An Introduction to the Economics of Networks]
    ," Introductory Chapters, Princeton University Press.
  4. Antonio Cabrales & Piero Gottardi, 2009. "Markets for Information: Of Inefficient Firewalls and Efficient Monopolies," Economics Working Papers ECO2009/11, European University Institute.
  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. Yann Bramoulle & Rachel Kranton, 2005. "Strategic Experimentation in Networks," NajEcon Working Paper Reviews 784828000000000417, www.najecon.org.
  7. Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
  8. Hojman, Daniel & Szeidl, Adam, 2006. "Core and Periphery in Endogenous Networks," Working Paper Series rwp06-022, Harvard University, John F. Kennedy School of Government.
  9. Andrea Galeotti, 2004. "One-way Flow Networks: the Role of Heterogeneity," Tinbergen Institute Discussion Papers 04-031/1, Tinbergen Institute.
  10. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.
  11. Myeonghwan Cho, 2010. "Endogenous formation of networks for local public goods," International Journal of Game Theory, Springer, vol. 39(4), pages 529-562, October.
  12. Jack Hirshleifer, 1983. "From weakest-link to best-shot: The voluntary provision of public goods," Public Choice, Springer, vol. 41(3), pages 371-386, January.
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