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Network formation with heterogeneous players

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Listed:
  • Galeotti, Andrea
  • Goyal, Sanjeev
  • Kamphorst, Jurjen

Abstract

This paper studies network formation in settings where players are heterogeneous with respect to benefits as well as the costs of forming links. Our results demonstrate that centrality, center-sponsorship and short network diameter are robust features of equilibrium networks. We find that in a society with many groups, where it is cheaper to connect within groups as compared to across groups, strategic play by individuals leads to a network architecture in which there is a core group which is entirely internally connected while all the other groups are entirely externally linked and hence completely fragmented. Since internal/within group links are cheaper to form, this implies that individual incentives may generate a significant waste of valuable social resources.
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Suggested Citation

  • Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
  • Handle: RePEc:eee:gamebe:v:54:y:2006:i:2:p:353-372
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    References listed on IDEAS

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    1. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January.
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    5. 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.
    6. Matthew O. Jackson & Bhaskar Dutta, 2000. "original papers : The stability and efficiency of directed communication networks," Review of Economic Design, Springer;Society for Economic Design, vol. 5(3), pages 251-272.
    7. Sanjeev Goyal & Marco J. van der Leij & José Luis Moraga-Gonzalez, 2006. "Economics: An Emerging Small World," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 403-432, April.
    8. Venkatesh Bala & Sanjeev Goyal, 2000. "original papers : A strategic analysis of network reliability," Review of Economic Design, Springer;Society for Economic Design, vol. 5(3), pages 205-228.
    9. Hojman, Daniel & Szeidl, Adam, 2006. "Core and Periphery in Endogenous Networks," Working Paper Series rwp06-022, Harvard University, John F. Kennedy School of Government.
    10. Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October.
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    12. Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, vol. 89(8), pages 1469-1495, August.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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