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The Evolution of Social and Economic Networks

  • Jackson, Matthew O.

We examine the dynamic formation and stochastic evolution of networks connecting individuals whose payoffs from an economic or social activity depends on the network structure in place. Over time, individuals form and sever links connecting themselves to other individuals based on the improvement the resulting network offers them relative to the current network. Such a process creates a sequence of networks that we call an 'improving path'. The changes made along an improving path make the individuals, who added or deleted the relevant link(s) at each date, better off. Such sequences of networks can cycle, and we study conditions on underlying allocation rules that characterize cycles. Building on an understanding of improving paths, we consider a stochastic evolutionary process where in addition to intended changes in the network there is a small probability of unintended changes or errors. Predictions can be made regarding the relative likelihood that the stochastic evolutionary process will lead to any given network at some time. The evolutionary process selects from among the statically stable networks and cycles. We show that in some cases, the evolutionary process selects inefficient networks even though eÆcient ones are statically stable. We apply these results to the matching literature to show that there are contexts in which the evolutionarily stable networks coincide with the core stable networks, and thus achieve eÆciency.

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Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 1044.

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Length: 44 pages
Date of creation: Sep 1998
Date of revision:
Publication status: Published: Journal of Economic Theory, 2002, vol. 106, no. 2, pg. 265-295
Handle: RePEc:clt:sswopa:1044
Contact details of provider: Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
Phone: 626 395-4065
Fax: 626 405-9841
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Order Information: Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125

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  1. Matthew O. Jackson & Bhaskar Dutta, 2000. "original papers : The stability and efficiency of directed communication networks," Review of Economic Design, Springer, vol. 5(3), pages 251-272.
  2. J Bergin & B L Lipman, 1997. "Evolution with state-dependent Mutations," Levine's Working Paper Archive 771, David K. Levine.
  3. 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.
  4. 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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  6. Tesfatsion, Leigh, 1997. "A Trade Network Game with Endogenous Partner Selection," Staff General Research Papers 1680, Iowa State University, Department of Economics.
  7. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
  8. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  9. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Jeffrey C. Ely, 2002. "Local Conventions," Discussion Papers 1349, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Ritzberger, Klaus & Weibull, Jorgen W, 1995. "Evolutionary Selection in Normal-Form Games," Econometrica, Econometric Society, vol. 63(6), pages 1371-99, November.
  12. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
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  14. Monderer, Dov & Samet, Dov & Shapley, Lloyd S, 1992. "Weighted Values and the Core," International Journal of Game Theory, Springer, vol. 21(1), pages 27-39.
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  16. Maxfield, Robert R., 1997. "General equilibrium and the theory of directed graphs," Journal of Mathematical Economics, Elsevier, vol. 27(1), pages 23-51, February.
  17. 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.
  18. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
  19. Weisbuch, Gerard & Alan Kirman & Dorothea K. Herreiner, 1996. "Market Organization," Discussion Paper Serie B 391, University of Bonn, Germany.
  20. Peyton Young & Dean Foster, 2010. "Cooperation in the Short and in the Long Run," Levine's Working Paper Archive 494, David K. Levine.
  21. Kirman, Alan P & Oddou, Claude & Weber, Shlomo, 1986. "Stochastic Communication and Coalition Formation," Econometrica, Econometric Society, vol. 54(1), pages 129-38, January.
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  23. Roth, Alvin E & Vande Vate, John H, 1990. "Random Paths to Stability in Two-Sided Matching," Econometrica, Econometric Society, vol. 58(6), pages 1475-80, November.
  24. Ely Jeffrey C, 2002. "Local Conventions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-32, May.
  25. Gerard Weisbuch & Alain Kirman & EHESS, . "Market Organizations for Perishable Goods," Computing in Economics and Finance 1997 60, Society for Computational Economics.
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