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The Stability of Exchange Networks

Author

Listed:
  • Gönül Dogan

    (Tilburg University)

  • M.A.L.M. van Assen

    (Tilburg University)

  • Arnout van de Rijt

    (Cornell University)

  • Vincent Buskens

    (Utrecht University)

Abstract

This paper develops a formal model of exchange network stability that combines expected value theory (Friedkin 1995) with the economic literature on network dynamics. We identify stable networks up to size 8 for varying costs and investigate whether they are Pareto efficient and egalitarian. Only a very small number of networks are stable. Odd cycles and networks consisting of dyads and at most one isolate are the only egalitarian, efficient, and stable networks for a large cost range. We show that some of these results are generalizable to networks of any size and are independent of using expected value theory.

Suggested Citation

  • Gönül Dogan & M.A.L.M. van Assen & Arnout van de Rijt & Vincent Buskens, 2007. "The Stability of Exchange Networks," Working Papers 2007.66, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2007.66
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    References listed on IDEAS

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    1. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 817-869.
    2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    3. 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.
    4. Gilles, R.P. & Sarangi, S., 2003. "The Role of Trust in Costly Network Formation," Discussion Paper 2003-53, Tilburg University, Center for Economic Research.
    5. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
    6. Berninghaus, Siegfried & Ehrhart, Karl-Martin & Ott, Marion, 2005. "A network experiment in continuous time : the influence of link costs," Papers 05-02, Sonderforschungsbreich 504.
    7. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange Networks; Stability; Efficiency; Equity; Social Dilemma;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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