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In Search of Stars: Network Formation among Heterogeneous Agents

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  • Goeree,Jacob K.
  • Riedl,Arno
  • Ule,Aljaz

    (METEOR)

Abstract

This paper reports the results of a laboratory experiments on network formation among heterogeneous agents. The experimental design extends the basic Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. We consider treatments where agents’ types are common knowledge and treatments where agents’ types are private information. In all treatments, the (efficient) equilibrium network has a “star” structure. We find that with homogeneous agents, equilibrium predictions fail completely. In Contrast, with heterogeneous agents stars frequently occur, often with the high-value or low- cost agent in the center. Stars are not borne but rather develop: in treatments with a high-value agents, the network’s centrality, stability, and efficiency all increase over time. Our results suggest that agents’ heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 032.

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Date of creation: 2005
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Handle: RePEc:unm:umamet:2005032

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Keywords: microeconomics ;

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References

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  1. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, Elsevier, vol. 54(2), pages 353-372, February.
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  3. Armin Falk, Michael Kosfeld, . "It's all about Connections: Evidence on Network Formation," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 146, Institute for Empirical Research in Economics - University of Zurich.
  4. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, Elsevier, vol. 50(2), pages 181-201, September.
  5. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 004, Institute for Empirical Research in Economics - University of Zurich.
  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. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Kosfeld Michael, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, De Gruyter, De Gruyter, vol. 3(1), pages 1-23, March.
  9. Sanjeev Goyal & Marco J. van der Leij & Jos� Luis Moraga-Gonzalez, 2006. "Economics: An Emerging Small World," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(2), pages 403-432, April.
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  14. Sudipta Sarangi & Hans Haller & Jurjen Kamphorst, . "(Non-)Existence and Scope of Nash Networks," Departmental Working Papers, Department of Economics, Louisiana State University 2005-14, Department of Economics, Louisiana State University.
  15. Sanjeev Goyal & Marco van der Leij & Jose Luis Moraga, 2004. "Economics: An Emerging Small World?," Tinbergen Institute Discussion Papers, Tinbergen Institute 04-001/1, Tinbergen Institute.
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Cited by:
  1. Harmsen-van Hout, Marjolein J.W. & Dellaert, Benedict G.C. & Herings, P. Jean-Jacques, 2008. "Behavorial Effects in Individual Decisions of Network Formation," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 019, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Anna Contea & Daniela T. Di Cagno & Emanuela Sciubbad, 2011. "Behavioural patterns in social networks," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2011-060, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Marco Mantovani & Georg Kirchsteiger & Ana Mauleon & Vincent Vannetelbosch, 2011. "Myopic or Farsighted? An Experiment on Network Formation," Working Papers, Fondazione Eni Enrico Mattei 2011.45, Fondazione Eni Enrico Mattei.
  4. Doğan, Gönül & van Assen, Marcel & Potters, Jan, 2013. "The effect of link costs on simple buyer–seller networks," Games and Economic Behavior, Elsevier, Elsevier, vol. 77(1), pages 229-246.
  5. Fehr, Ernst & Schmidt, Klaus M., 2010. "On inequity aversion: A reply to Binmore and Shaked," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 73(1), pages 101-108, January.
  6. Sanjeev Goyal & Stephanie Rosenkranz & Utz Weitzel & Vincent Buskens, 2014. "Individual Search and Social Networks," Working Papers, Fondazione Eni Enrico Mattei 2014.49, Fondazione Eni Enrico Mattei.
  7. Edoardo Gallo, 2014. "Communication networks in markets," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1431, Faculty of Economics, University of Cambridge.
  8. Anthony Ziegelmeyer & Katinka Pantz, 2005. "Collaborative Networks in Experimental Triopolies," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2005-38, Max Planck Institute of Economics, Strategic Interaction Group.
  9. Michael Caldara & Michael McBride, 2014. "An Experimental Study of Network Formation with Limited Observation," Working Papers 141501, University of California-Irvine, Department of Economics.
  10. Rosenkranz, Stephanie & Weitzel, Utz, 2012. "Network structure and strategic investments: An experimental analysis," Games and Economic Behavior, Elsevier, Elsevier, vol. 75(2), pages 898-920.
  11. Rong Rong & Daniel Houser, 2012. "Growing Stars: A Laboratory Analysis of Network Formation," Working Papers, George Mason University, Interdisciplinary Center for Economic Science 1035, George Mason University, Interdisciplinary Center for Economic Science, revised Oct 2012.
  12. Boris van Leeuwen & Theo Offerman & Arthur Schram, 2013. "Superstars Need Social Benefits: An Experiment on Network Formation," Tinbergen Institute Discussion Papers, Tinbergen Institute 13-112/I, Tinbergen Institute.

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