Under-connected and over-connected networks : the role of externalities in strategic network formation
Journal
Review of Economic Design
ISSN
1434-4742
ISSN-Digital
1434-4750
Type
journal article
Date Issued
2012-03-01
Author(s)
Buechel, Berno
;
Hellmann, Tim
Abstract
Since the seminal contribution of Jackson and Wolinsky (J Econ Theory 71(1):44-74, 1996) 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 omission by analyzing the role of positive and negative externalities of link formation. This yields 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. Those results are neither restricted to specific assumptions on the agents' preferences (e.g. homogeneity), nor to a specific notion of stability or efficiency.
Language
English
Keywords
Networks - Connections - Externalities - Spillovers - Stability - Efficiency
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer
Publisher place
Berlin
Volume
16
Number
1
Start page
71
End page
87
Pages
17
Subject(s)
Eprints ID
246696