Advanced Search
MyIDEAS: Login to save this paper or follow this series

It's all about Connections: Evidence on Network Formation

Contents:

Author Info

  • Falk, Armin

    ()
    (University of Bonn)

  • Kosfeld, Michael

    ()
    (Goethe University Frankfurt)

Abstract

We present an economic experiment on network formation, in which subjects can decide to form links to one another. Direct links are costly but being connected is valuable. The gametheoretic basis for our experiment is the model of Bala and Goyal (2000). They distinguish between two scenarios regarding the flow of benefits through a network, the so-called 1-way and 2-way flow model. Our main results show that the prediction based on Nash and strict Nash equilibrium works well in the 1-way flow model but fails largely in the 2-way flow model. We observe a strong learning dynamic in the 1-way flow model but less so in the 2-way flow model. Finally, costs of a direct link have a positive impact on the occurrence of (strict) Nash networks in the 1-way flow model but a negative impact in the 2-way flow model. In our discussion on possible explanations for these results we focus on strategic asymmetry and asymmetry with respect to payoffs. We find that the latter asymmetry, i.e., payoff inequity, plays an important role in the network formation process.

Download Info

If 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.
File URL: http://ftp.iza.org/dp777.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 777.

as in new window
Length: 38 pages
Date of creation: Apr 2003
Date of revision:
Publication status: published in: Review of Network Economics: 2012, 11 (3), Article 2
Handle: RePEc:iza:izadps:dp777

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: coordination; experiments; network formation; fairness;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics, University of Munich, Department of Economics.
  2. Armin Falk & Urs Fischbacher, 2001. "A Theory of Reciprocity," CESifo Working Paper Series 457, CESifo Group Munich.
  3. 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.
  4. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers, University of California at Berkeley 92-199, University of California at Berkeley.
  5. David J. Zimmerman, 2003. "Peer Effects in Academic Outcomes: Evidence from a Natural Experiment," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 9-23, February.
  6. John Duffy & Dean Corbae, 2006. "Experiments with Network Formation," Working Papers, University of Pittsburgh, Department of Economics 292, University of Pittsburgh, Department of Economics, revised Aug 2007.
  7. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 209-219, Spring.
  8. Marianne Bertrand & Erzo F. P. Luttmer & Sendhil Mullainathan, 1999. "Network Effects and Welfare Cultures," Working Papers, Harris School of Public Policy Studies, University of Chicago 9903, Harris School of Public Policy Studies, University of Chicago.
  9. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics, EconWPA 0211011, EconWPA.
  10. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, Elsevier, vol. 5(3), pages 387-424, July.
  11. Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
  12. Bruce Sacerdote, 2000. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," NBER Working Papers 7469, National Bureau of Economic Research, Inc.
  13. Ernst Fehr & Simon G�chter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 159-181, Summer.
  14. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography, EconWPA 0305001, EconWPA.
  15. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  16. Michael Kosfeld, 2002. "Stochastic strategy adjustment in coordination games," Economic Theory, Springer, Springer, vol. 20(2), pages 321-339.
  17. Gary Charness & Margarida Corominas-Bosch & Guillaume R. Frechette, 2004. "Bargaining and Network Structure: An Experiment," Econometric Society 2004 North American Summer Meetings, Econometric Society 653, Econometric Society.
  18. McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2036, C.E.P.R. Discussion Papers.
  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  20. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 1047-71, September.
  21. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc.
  22. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  23. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 14(1), pages 124-143, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp777. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.