Under-connected and Over-connected Networks
Since the seminal contribution of Jackson & Wolinsky 1996 [A Strategic Model of Social and Economic Networks, JET 71, 44-74] it has been widely acknowledged that the formation of social networks exhibits a general conflict between individual strategic behavior and collective outcome. What has not been studied systematically are the sources of inefficiency. We approach this omission by analyzing the role of positive and negative externalities of link formation. This yields general results that relate situations of positive externalities with stable networks that cannot be “too dense” in a well-defined sense, while situations with negative externalities tend to induce “too dense” networks.
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1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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2009.38, Fondazione Eni Enrico Mattei.
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1147, California Institute of Technology, Division of the Humanities and Social Sciences.
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-1711, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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