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In Search of Stars: Network Formation among Heterogeneous Agents

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Author Info
Jacob K. Goeree () (California Institute of Technology)
Arno Riedl () (University of Maastricht and IZA Bonn)
Aljaz Ule () (CREED, University of Amsterdam)

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Abstract

This paper reports the results of a laboratory experiment on network formation among heterogeneous agents. The experimental design extends the basic Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. We consider treatments where agents' types are common knowledge and treatments where agents' types are private information. In all treatments, the (efficient) equilibrium network has a "star" structure. We find that with homogeneous agents, equilibrium predictions fail completely. In contrast, with heterogeneous agents stars frequently occur, often with the high-value or low-cost agent in the center. Stars are not borne but rather develop: in treatments with a high-value agent, the network's centrality, stability, and efficiency all increase over time. Our results suggest that agents' heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1754.

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Length: 33 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1754

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Related research
Keywords: network formation; stars; heterogeneity; laboratory experiments;

Other versions of this item:

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jackson, Matthew O., 2005. "The economics of social networks," Working Papers 1237, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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    Other versions:
  4. Jackson, Matthew O. & Rogers, Brian W., 2005. "Search in the formation of large networks: How random are socially generated networks?," Working Papers 1216, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  5. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  6. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  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. Andrea Galeotti & Sanjeev Goyal & Jurjen Kamphorst, 2003. "Network Formation with Heterogeneous Players," Economics Discussion Papers 562, University of Essex, Department of Economics. [Downloadable!]
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  9. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers iewwp004, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  10. John Duffy & Dean Corbae, 2006. "Experiments with Network Formation," Working Papers 292, University of Pittsburgh, Department of Economics, revised Aug 2007. [Downloadable!]
    Other versions:
  11. Falk, Armin & Kosfeld, Michael, 2003. "It's all about Connections: Evidence on Network Formation," IZA Discussion Papers 777, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  12. 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)
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  13. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September. [Downloadable!] (restricted)
  14. Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, vol. 89(8), pages 1469-1495, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Duffy & Dean Corbae, 2006. "Experiments with Network Formation," Working Papers 292, University of Pittsburgh, Department of Economics, revised Aug 2007. [Downloadable!]
    Other versions:
  2. Anthony Ziegelmeyer & Katinka Pantz, 2005. "Collaborative Networks in Experimental Triopolies," Papers on Strategic Interaction 2005-38, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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