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A degree-distance-based connections model with negative and positive externalities

We develop a modification of the connections model by Jackson and Wolinsky (1996) that takes into account negative externalities arising from the connectivity of direct and indirect neighbors, thus combining aspects of the connections model and the co-author model. We consider a general functional form for agents' utility that incorporates both the effects of distance and of neighbors' degree. Consequently, we introduce a framework that can be seen as a degree-distance-based connections model with both negative and positive externalities. Our analysis shows how the introduction of negative externalities modifies certain results about stability and efficiency compared to the original connections model. In particular, we see the emergence of new stable structures, such as a star with links between peripheral nodes. We also identify structures, for example, certain disconnected networks, that are efficient in our model but which could not be efficient in the original connections model. While our results are proved for the general utility function, some of them are illustrated by using a specific functional form of the degree-distance-based utility.

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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 13040.

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Length: 29 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:mse:cesdoc:13040
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  1. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2012. "Directed Networks with Spillovers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(6), pages 849-878, December.
  2. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2012. "On the interaction between heterogeneity and decay in two-way flow models," Theory and Decision, Springer, vol. 73(4), pages 525-538, October.
  3. Andrea Galeotti & Sanjeev Goyal & Jurjen Kamphorst, 2003. "Network Formation with Heterogeneous Players," Economics Discussion Papers 562, University of Essex, Department of Economics.
  4. Jackson, Matthew O. & van den Nouweland, Anne, 2005. "Strongly stable networks," Games and Economic Behavior, Elsevier, vol. 51(2), pages 420-444, May.
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  7. Carayol, Nicolas & Roux, Pascale, 2009. "Knowledge flows and the geography of networks: A strategic model of small world formation," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 414-427, August.
  8. Tim Hellmann & Berno Buechel, 2009. "Under-connected and Over-connected Networks," Working Papers 2009.38, Fondazione Eni Enrico Mattei.
  9. Sudipta Sarangi & Pascal Billand & Christophe Bravard, . "Local Spillovers, Convexity and the Strategic Substitutes Property in Networks," Departmental Working Papers 2011-01, Department of Economics, Louisiana State University.
  10. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  11. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
  12. Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
  13. Haller, Hans, 2012. "Network extension," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 166-172.
  14. Tim Hellmann, 2013. "On the existence and uniqueness of pairwise stable networks," International Journal of Game Theory, Springer, vol. 42(1), pages 211-237, February.
  15. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  16. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  17. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer, vol. 5(3), pages 273-299.
  18. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  19. Thayer Morrill, 2011. "Network formation under negative degree-based externalities," International Journal of Game Theory, Springer, vol. 40(2), pages 367-385, May.
  20. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
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