Regular Article
A Strategic Model of Social and Economic Networks

https://doi.org/10.1006/jeth.1996.0108Get rights and content

Abstract

We study the stability and efficiency of social and economic networks, when self-interested individuals can form or sever links. First, for two stylized models, we characterize the stable and efficient networks. There does not always exist a stable network that is efficient. Next, we show that this tension persists generally: to assure that there exists a stable network that is efficient, one is forced to allocate resources to nodes that are not responsible for any of the production. We characterize one such allocation rule: the equal split rule, and another rule that arises naturally from bargaining of the players.Journal Economic LiteratureClassification Numbers: A14, D20, J00.

References (0)

Cited by (1648)

  • Multidimensional homophily

    2024, Journal of Economic Behavior and Organization
  • Public goods provision in a network formation game

    2024, Journal of Economic Behavior and Organization
  • Team production in endogenous networks

    2024, Journal of Economic Behavior and Organization
  • Connecting friends

    2023, Journal of Economic Theory
  • Dissonance minimization and conversation in social networks

    2023, Journal of Economic Behavior and Organization
View all citing articles on Scopus

We thank Kyle Bagwell, Dawn Iacobucci, Ehud Kalai, Bart Lipman, James Montgomery, Roger Myerson, Anne van den Nouweland, Jeroen Swinkels, Sang-Seung Yi, and an anonymous referee, for helpful written comments and/or conversations. Our understanding and presentation of the results have benefited from the interaction in seminar presentations, whose participants we thank without listing. Support from U.S.-Israel BSF Grant 90-00165 is gratefully acknowledged.

View full text