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Under-connected and over-connected networks

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Author Info
Berno Buechel () (Institute of Mathematical Economics, Bielefeld University)
Tim Hellmann () (Institute of Mathematical Economics, Bielefeld University)

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Abstract

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 gap by analyzing the role of positive and negative externalities of link formation. We find 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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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-400.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Bielefeld University, Institute of Mathematical Economics in its series Working Papers with number 400.

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Length: 24 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:bie:wpaper:400

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Web page: http://www.imw.uni-bielefeld.de/
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Related research
Keywords: networks; network formation; connections; game theory; externalities; spillovers; stability; efficiency;

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Find related papers by JEL classification:
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

References listed on IDEAS
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  1. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, 05. [Downloadable!] (restricted)
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  2. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  3. Jackson, Matthew O. & van den Nouweland, Anne, 2005. "Strongly stable networks," Games and Economic Behavior, Elsevier, vol. 51(2), pages 420-444, May. [Downloadable!] (restricted)
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  4. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October. [Downloadable!] (restricted)
  5. Subhadip Chakrabarti & Robert Gilles, 2007. "Network potentials," Review of Economic Design, Springer, vol. 11(1), pages 13-52, June. [Downloadable!] (restricted)
  6. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March. [Downloadable!] (restricted)
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  7. Michael Kosfeld, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, Concept Economics, vol. 3(1), pages 19-41, March. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
    Other versions:
  9. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November. [Downloadable!] (restricted)
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