Under-Connected and Over-Connected Networks

40 Pages Posted: 8 Aug 2009

See all articles by Berno Buechel

Berno Buechel

Bielefeld University - Center for Mathematical Economics

Tim Hellmann

Independent

Date Written: August 4, 2009

Abstract

Since the seminal contribution of Jackson & Wolinsky 1996 [A Strategic Model of Social and Economic Networks, JET 71, 44-74] 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.

Keywords: Networks, Network Formation, Connections, Game Theory, Externalities

JEL Classification: D85, C72, L14

Suggested Citation

Buechel, Berno and Hellmann, Tim, Under-Connected and Over-Connected Networks (August 4, 2009). FEEM Working Paper No. 38.2009. Available at SSRN: https://ssrn.com/abstract=1443793 or http://dx.doi.org/10.2139/ssrn.1443793

Berno Buechel (Contact Author)

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Tim Hellmann

Independent ( email )

No Address Available

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