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Stability in a Network Economy: The Role of Institutions

Author

Listed:
  • Robert P. GILLES

    (Queen's University Management School, Queen's University Belfast, Ireland, United Kingdom)

  • Emiliya A. LAZAROVA

    (School of Economics, University of East Anglia, Norwich, United Kingdom)

  • Pieter H.M. RUYS

    (Center for Economic Research, Tilburg University, The Netherlands)

Abstract

We consider an economy in which agents are embedded in a network of potential value-generating relationships. Agents are assumed to be able to participate in three types of economic interactions: Autarkic self-provision; bilateral interaction; and multilateral collaboration. We introduce two stability concepts and provide sufficient and necessary conditions on the network structure that guarantee existence, both in the absence of externalities from cooperation as well as under crowding conditions. We show that institutions such as socioeconomic roles and hierarchical leadership structures are necessary for stability. In particular, the stability of more complex economic outcomes requires more stringent restrictions on the underlying network which imply more complex institutional rules that govern economic interactions. Thus, we provide support for the theory of co-evolution of institutions and economic outcomes.

Suggested Citation

  • Robert P. GILLES & Emiliya A. LAZAROVA & Pieter H.M. RUYS, 2015. "Stability in a Network Economy: The Role of Institutions," CIRIEC Working Papers 1501, CIRIEC - Université de Liège.
    • Handle: RePEc:crc:wpaper:1501
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    Cited by:

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    3. Wolfram Elsner, 2019. "Policy and state in complexity economics," Chapters, in: Nikolaos Karagiannis & John E. King (ed.), A Modern Guide to State Intervention, chapter 1, pages 13-48, Edward Elgar Publishing.
    4. Pieter H.M. RUYS, 2014. "Architecture of an Economy with Social Enterprises: the Relational Capacity Approach," CIRIEC Working Papers 1413, CIRIEC - Université de Liège.
    5. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    6. Elsner, Wolfram, 2015. "Policy Implications of Economic Complexity and Complexity Economics," MPRA Paper 63252, University Library of Munich, Germany.
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    8. Robert P. Gilles, 2017. "Comments on: Games with a permission structure - A survey on generalizations and applications," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 25(1), pages 34-38, April.
    9. Qingru Sun & Xiangyun Gao & Ze Wang & Siyao Liu & Sui Guo & Yang Li, 2020. "Quantifying the risk of price fluctuations based on weighted Granger causality networks of consumer price indices: evidence from G7 countries," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(4), pages 821-844, October.

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    More about this item

    Keywords

    Network economies; Economic outcomes; Stability;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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