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Growing Stars: A Laboratory Analysis of Network Formation

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  • Rong Rong

    () (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

  • Daniel Houser

    () (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

Abstract

The acquisition and dispersion of information, a critical aspect of economic decisions, can occur through a network of agents (Jackson, 2009). Empirical and theoretical findings suggest that an efficient information dispersion network takes the form of a star: small numbers of agents gather information and distribute it to a large group. Controlled tests of this theory, however, have typically found little evidence of star network emergence. An exception is Goeree et al (2009), which reports reliable star network formation in an environment that includes ex ante heterogeneous agents. While heterogeneity may explain network formation sometimes, it seems to play a smaller role in other cases (Feick and Price, 1987; Conley and Udry, 2010). In this paper we investigate whether specific institutional conditions promote star network formation with ex ante homogeneous agents. We  find  that  investment  limits  and  the  “right-of- first-refusal,† both  of  which  are institutions that stabilize decision making, have a surprising ability to promote star network formation. Further, using a cluster analysis that allows us to draw inferences about individuals’  behavioral rules, we find that these effective institutions encourage individual rationality as well as positive habits. We argue that these decision rules emerge due to the stabilizing features of the institutions and this stability facilitates improved network behaviors and outcomes. Length: 56

Suggested Citation

  • Rong Rong & Daniel Houser, 2012. "Growing Stars: A Laboratory Analysis of Network Formation," Working Papers 1035, George Mason University, Interdisciplinary Center for Economic Science, revised Oct 2012.
  • Handle: RePEc:gms:wpaper:1035
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Boris van Leeuwen & Theo Offerman & Arthur Schram, 2013. "Superstars need Social Benefits: An Experiment on Network Formation," Tinbergen Institute Discussion Papers 13-112/I, Tinbergen Institute.
    2. Offerman, Theo & Schram, Arthur & Van Leeuwen, Boris, 2014. "Competition for status creates superstars: An experiment on public good provision and network formation," IAST Working Papers 14-16, Institute for Advanced Study in Toulouse (IAST).
    3. repec:eee:phsmap:v:495:y:2018:i:c:p:353-392 is not listed on IDEAS
    4. Liza Charroin, 2016. "The effect of sequentiality and heterogeneity in network formation games," Working Papers halshs-01368067, HAL.
    5. repec:eee:jeborg:v:141:y:2017:i:c:p:43-63 is not listed on IDEAS
    6. Liza Charroin, 2016. "The effect of sequentiality and heterogeneity in network formation games," Working Papers 1629, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    7. Francesco Fallucchi & R. Andrew Luccasen & Theodore L. Turocy, 2017. "Behavioural types in public goods games: A re-analysis by hierarchical clutering," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 17-01R, School of Economics, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

    social networks; star network formation; cluster analysis; experiments.;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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