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Jefficiency vs. Efficiency in Social Network Models

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Author Info
Jochen Moebert () (Darmstadt University of Technology, Department of Economics)

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Abstract

The mainly used welfare criterion in the social network literature is Bentham´s utilitarian concept. The shortcomings of this concept are well-known. We compare the outcomes of the utilitarian concept with the Nash social welfare function. By using a Taylor approximation we deduce a formula which allows the direct comparison of both concepts. The implications of welfare considerations of important network formation models are evaluated by using the multiplicative concept. We introduce a new symmetric connection model which is related to Nash´s welfare function in the same way as the original model is related to the utilitarian function. Based on the observation that heavy tail distributions like the power law distribution and the Pareto distribution can be explained by multiplicative structures we propose to use multiplicative utility functions in social network models. Furthermore, multiplicative utility and welfare functions together exhibit favorable characteristics both in normative and positive terms. Many empirically observed social networks have structures which are better modelled by multiplicative functions. From the normative perspective, multiplicative functions might be attractive since the Nash product introduces some form of justice.

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Publisher Info
Paper provided by Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology) in its series Darmstadt Discussion Papers in Economics with number 161.

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Length: 15 pages
Date of creation: Mar 2006
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Handle: RePEc:tud:ddpiec:161

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Related research
Keywords: social networks; welfare; efficiency; Nash product; jefficiency; justice;

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Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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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.:
  1. Sanjeev Goyal & Marco van der Leij & José Luis Moraga-Gonzàlez, 2004. "Economics: An Emerging Small World?," Working Papers 2004.84, Fondazione Eni Enrico Mattei. [Downloadable!]
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  2. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  3. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April. [Downloadable!] (restricted)
  4. Eran Hanany, 2001. "Ordinal Nash Social Welfare Function," Discussion Papers 1325, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  5. Nicolas CARAYOL (ADIS, BETA) & Pascale ROUX (ADIS, BETA) & Murat YILDIZOGLU (E3I, IFReDE-GRES), 2005. "Efficiency of network structures: The needle in the haystack," Cahiers du GRES 2005-06, Groupement de Recherches Economiques et Sociales. [Downloadable!]
  6. Jochen Moebert, 2006. "Classification of Network Formation Models," Darmstadt Discussion Papers in Economics 160, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
  7. Kaneko, Mamoru & Nakamura, Kenjiro, 1979. "The Nash Social Welfare Function," Econometrica, Econometric Society, vol. 47(2), pages 423-35, March. [Downloadable!] (restricted)
  8. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
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  1. Jochen Moebert, 2006. "Classification of Network Formation Models," Darmstadt Discussion Papers in Economics 160, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
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