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The Stability of Exchange Networks

  • Gönül Dogan

    (Tilburg University)

  • M.A.L.M. van Assen

    (Tilburg University)

  • Arnout van de Rijt

    (Cornell University)

  • Vincent Buskens

    (Utrecht University)

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    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.

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    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.66.

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    Date of creation: Jun 2007
    Date of revision:
    Handle: RePEc:fem:femwpa:2007.66
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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.
    2. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA.
    4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
    5. Gilles, R.P. & Sarangi, S., 2003. "The Role of Trust in Costly Network Formation," Discussion Paper 2003-53, Tilburg University, Center for Economic Research.
    6. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
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