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Stability in a Network Economy: The Role of Institutions

Listed author(s):
  • Robert P. GILLES

    ()

    (Queen's University Management School, Queen's University Belfast, Ireland, United Kingdom)

  • Emiliya A. LAZAROVA

    ()

    (School of Economics, University of East Anglia, Norwich, United Kingdom)

  • Pieter H.M. RUYS

    ()

    (Center for Economic Research, Tilburg University, The Netherlands)

We consider an economy in which agents are embedded in a network of potential value-generating relationships. Agents are assumed to be able to participate in three types of economic interactions: Autarkic self-provision; bilateral interaction; and multilateral collaboration. We introduce two stability concepts and provide sufficient and necessary conditions on the network structure that guarantee existence, both in the absence of externalities from cooperation as well as under crowding conditions. We show that institutions such as socioeconomic roles and hierarchical leadership structures are necessary for stability. In particular, the stability of more complex economic outcomes requires more stringent restrictions on the underlying network which imply more complex institutional rules that govern economic interactions. Thus, we provide support for the theory of co-evolution of institutions and economic outcomes.

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File URL: http://hec-cloud01.segi.ulg.ac.be/repec/wp15-01.pdf
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Paper provided by CIRIEC - Université de Liège in its series CIRIEC Working Papers with number 1501.

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Date of creation: Jan 2015
Handle: RePEc:crc:wpaper:1501
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