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Core and Periphery in Endogenous Networks

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  • Hojman, Daniel

    (Harvard U)

  • Szeidl, Adam

    (U of California, Berkeley)

Abstract

Many economic and social networks share two common organizing features: (1) a core-periphery structure; (2) positive correlation between network centrality and payoffs. In this paper, we build a model of network formation where these features emerge endogenously. In our model, the unique equilibrium network architecture is a periphery-sponsored star. In this equilibrium, one player, the center, maintains no links and achieves a high payoff, while all other players maintain a single link to the center and achieve lower payoffs. With heterogeneous groups, equilibrium networks are interconnected stars. We show that small minorities tend to integrate while large minorities are self-sufficient. Although any player can be the center in a static equilibrium, evolution selects the agent with most valuable resources as the center in the long run. In particular, even small inequalities in resources can lead to large payoff inequality because of the endogenous social structure. Our main results are robust to the introduction of transfers and bargaining over link costs.

Suggested Citation

  • Hojman, Daniel & Szeidl, Adam, 2006. "Core and Periphery in Endogenous Networks," Working Paper Series rwp06-022, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp06-022
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    File URL: https://research.hks.harvard.edu/publications/workingpapers/citation.aspx?PubId=3982&type=WPN
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    References listed on IDEAS

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    Cited by:

    1. Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2011. "History and Industry Location: Evidence from German Airports," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 814-831, August.
    2. Galeotti, Andrea & Goyal, Sanjeev, 2007. "The Law of the Few," Economics Discussion Papers 2981, University of Essex, Department of Economics.
    3. Krogmann, Yin & Riedel, Nadine & Schwalbe, Ulrich, 2013. "Inter-firm R&D networks in pharmaceutical biotechnology: What determines firm's centrality-based partnering capability," FZID Discussion Papers 75-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    4. Francesco Feri & Miguel A.Mel?ndez-Jim?nez, 2009. "Coordination in Evolving Networks with Endogenous Decay," Working Papers 2009-19, Faculty of Economics and Statistics, University of Innsbruck.
    5. Mohamed Belhaj & Frédéric Deroian, 2010. "Endogenous effort in communication networks under strategic complementarity," International Journal of Game Theory, Springer;Game Theory Society, vol. 39(3), pages 391-408, July.
    6. Dotan Persitz, 2009. "Power in the Heterogeneous Connections Model: The Emergence of Core-Periphery Networks," Working Papers 2009.42, Fondazione Eni Enrico Mattei.
    7. Deroian, F., 2008. "Dissemination of spillovers in cost-reducing alliances," Research in Economics, Elsevier, vol. 62(1), pages 34-44, March.
    8. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
    9. Francesco Feri & Miguel Meléndez-Jiménez, 2013. "Coordination in evolving networks with endogenous decay," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 955-1000, November.
    10. Deroian, F., 2009. "Endogenous link strength in directed communication networks," Mathematical Social Sciences, Elsevier, vol. 57(1), pages 110-116, January.
    11. Staudigl, Mathias & Weidenholzer, Simon, 2014. "Constrained interactions and social coordination," Journal of Economic Theory, Elsevier, vol. 152(C), pages 41-63.
    12. Frédéric Deroïan, 2006. "Formation of a Communication Network Under Perfect Foresight," Theory and Decision, Springer, vol. 61(3), pages 191-204, November.
    13. repec:esx:essedp:747 is not listed on IDEAS
    14. David Frachisse & Pascal Billand, 2008. "The Sixth Framework Program as an Affiliation Network: Representation and Analysis," Working Papers 2008.32, Fondazione Eni Enrico Mattei.
    15. Hojman, Daniel A. & Szeidl, Adam, 2006. "Endogenous networks, social games, and evolution," Games and Economic Behavior, Elsevier, vol. 55(1), pages 112-130, April.

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    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics

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