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Social activity and network formation

  • Baetz, Oliver

    ()

    (Department of Economics, University of Cambridge)

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    This paper develops a simple model in which a social hierarchy emerges endogenously when agents form a network for complementary interaction (``activity''). Specifically, we assume that agents are ex ante identical and their best response activity, as well as their value function, increases (strictly) concavely in the total activity of their neighbours in the network. There exists a unique and stable positive activity equilibrium on exogenous networks under mild conditions. When we endogenise network formation, equilibria become strongly structured: more active players have more neighbours, i.e. a higher degree, but tend to sponsor fewer links. Additionally, in strict equilibria agents separate themselves into groups characterised by the symmetric activity of their members. The characteristic activity decreases in group size and the network is a complete multipartite graph.

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20150315/13018/383
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    Article provided by Econometric Society in its journal Theoretical Economics.

    Volume (Year): 10 (2015)
    Issue (Month): 2 (May)
    Pages:

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    Handle: RePEc:the:publsh:1487
    Contact details of provider: Web page: http://econtheory.org

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    1. 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.
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    17. repec:cep:stitep:/2013/564 is not listed on IDEAS
    18. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
    19. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
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