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Exploring Impact: Negative Effects of Social Networks

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  • Henrik Egbert
  • Teodor Sedlarski

Abstract

The sociological literature on social networks emphasizes by and large positive network effects. Negative effects of such networks are discussed rather rarely. This paper tackles negative effects by applying economic theory, particularly neoclassical theory, new institutional theory and the results from experimental economics to the concept of social networks. In the paper it is assumed that social networks are exclusive and since exclusiveness affects the allocation of resources, negative external effects may occur. The argument of the paper is that it is not only advantages for network members that need to be investigated but also the disadvantages for non-network members. The results have two implications. The first one is for economic policy, which often fosters social networking while ignoring their negative externalities. The second one is for network research that can benefit from a more rigorous application of economic theories.

Suggested Citation

  • Henrik Egbert & Teodor Sedlarski, 2011. "Exploring Impact: Negative Effects of Social Networks," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 1(2), pages 1-80.
    • Handle: RePEc:ers:ijfirm:v:1:y:2011:i:2:p:80
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    Cited by:

    1. Henrik Egbert & Teodor Sedlarski & Aleksandar B. Todorov, 2024. "Foundations of Contemporary Economics: New Institutional Economics vs. New Economic Sociology – The Granovetter-Williamson Debate," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 37-53.
    2. Teodor Sedlarski, 2019. "Political Economy Of Social Status - Economic And Socio-Psychological Effects Of Status Competition On 'Winner-Take-All' Markets," Yearbook of the Faculty of Economics and Business Administration, Sofia University, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria, vol. 17(1), pages 211-277, June.
    3. Teodor Sedlarski, 2019. "Political Economy Of Social Status: Economic And Socio-Psychological Effects Of Status Competition On ‘Winner-Take-All’ Markets," Yearbook of St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration, St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration, vol. 17(12), pages 211-277, June.

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    More about this item

    Keywords

    social networks; network effect; network externality; transaction costs; negative effects;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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