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The Stability of Exchange Networks

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Author Info

  • Gönül Dogan

    (Tilburg University)

  • M.A.L.M. van Assen

    (Tilburg University)

  • Arnout van de Rijt

    (Cornell University)

  • Vincent Buskens

    (Utrecht University)

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    Abstract

    This paper develops a formal model of exchange network stability that combines expected value theory (Friedkin 1995) with the economic literature on network dynamics. We identify stable networks up to size 8 for varying costs and investigate whether they are Pareto efficient and egalitarian. Only a very small number of networks are stable. Odd cycles and networks consisting of dyads and at most one isolate are the only egalitarian, efficient, and stable networks for a large cost range. We show that some of these results are generalizable to networks of any size and are independent of using expected value theory.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.66.

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    Date of creation: Jun 2007
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    Handle: RePEc:fem:femwpa:2007.66

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    Related research

    Keywords: Exchange Networks; Stability; Efficiency; Equity; Social Dilemma;

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    1. 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.
    2. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
    3. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    4. Sudipta Sarangi & Robert P. Gilles, 2004. "The Role of Trust in Costly Network Formation," Econometric Society 2004 North American Summer Meetings 483, Econometric Society.
    5. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
    6. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
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