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Inefficiencies in a model of spatial networks formation with positive externalities

  • Carayol, Nicolas
  • Roux, Pascale
  • YIldIzoGlu, Murat

In this paper, we make an exploratory use of computational techniques (genetic algorithms and Monte Carlo simulations) to compute efficient and emergent networks in a spatialized version of the connections model of Jackson and Wolinski [Jackson, M.O., Wolinski, A., 1996. A strategic model of social and economic networks. Journal of Economic Theory 71, 44-74]. This approach allows us to observe and discuss inefficiencies that arise in a strategic network formation context with imperfectly link-mediated positive externalities to connections and spatial link costs. Our results highlight that, depending on the strength of the externalities, emergent and efficient networks may share several structural properties. Nevertheless, emergent networks are insufficiently dense and should be more structured around central agents.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 67 (2008)
Issue (Month): 2 (August)
Pages: 495-511

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Handle: RePEc:eee:jeborg:v:67:y:2008:i:2:p:495-511
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Matthew O. Jackson & Francis Bloch, 2004. "The Formation of Networks with Transfers among Players," Working Papers 2004.80, Fondazione Eni Enrico Mattei.
  3. Kirman, Alan P. & Vriend, Nicolaas J., 2001. "Evolving market structure: An ACE model of price dispersion and loyalty," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 459-502, March.
  4. Matthew O. Jackson & Brian W. Rogers, 2005. "The Economics of Small Worlds," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 617-627, 04/05.
  5. Dupouet, Olivier & Yildizoglu, Murat, 2006. "Organizational performance in hierarchies and communities of practice," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 668-690, December.
  6. Robles, Jack, 1998. "Evolution with Changing Mutation Rates," Journal of Economic Theory, Elsevier, vol. 79(2), pages 207-223, April.
  7. 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.
  8. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer, vol. 5(3), pages 273-299.
  9. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  10. Fernando Vega Redondo, 2002. "Building Up Social Capital In A Changing World," Working Papers. Serie AD 2002-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Leigh TESFATSION, 1995. "A Trade Network Game With Endogenous Partner Selection," Economic Report 36, Iowa State University Department of Economics.
  12. Nicolas Carayol & Pascale Roux, 2004. "Behavioral Foundations And Equilibrium Notions For Social Network Formation Processes," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 77-92.
  13. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
  14. 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 (2002-2009) 2005-06, Groupement de Recherches Economiques et Sociales.
  15. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
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