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Nestedness in Networks: A Theoretical Model and Some Applications

Author

Listed:
  • Michael Koenig

    (Stanford University)

  • Claudio Tessone

    (Swiss Federal Institute of Technology Zurich)

  • Yves Zenou

    (Stockholm University)

Abstract

We develop a dynamic network formation model that can explain the observed nestedness in real-world networks. Links are formed on the basis of agents’ centrality and have an exponentially distributed life time. We use stochastic stability to identify the networks to which the network formation process converges and find that they are nested split graphs. We completely determine the topological properties of the stochastically stable networks and show that they match features exhibited by real-world networks. Using four different network datasets, we empirically test our model and show that it fits well the observed networks.

Suggested Citation

  • Michael Koenig & Claudio Tessone & Yves Zenou, 2012. "Nestedness in Networks: A Theoretical Model and Some Applications," Discussion Papers 11-003, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:11-005
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    More about this item

    Keywords

    Nestedness; Bonacich centrality; network formation; nested split graphs;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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