Strategic Random Networks: Why Social Networking Technology Matters

34 Pages Posted: 27 Mar 2010 Last revised: 14 Apr 2010

See all articles by Benjamin Golub

Benjamin Golub

Stanford Graduate School of Business

Yair Livne

Independent

Date Written: March 22, 2010

Abstract

This paper develops strategic foundations for an important statistical model of random networks with heterogeneous expected degrees. Based on this, we show how social networking services that subtly alter the costs and indirect benefits of relationships can cause large changes in behavior and welfare. In the model, agents who value friends and friends of friends choose how much to socialize, which increases the probabilities of links but is costly. There is a sharp transition from fragmented, sparse equilibrium networks to connected, dense ones when the value of friends of friends crosses a cost-dependent threshold. This transition mitigates an extreme inefficiency.

Keywords: network formation, random graphs, random networks, socializing, phase transition

JEL Classification: D85

Suggested Citation

Golub, Benjamin and Livne, Yair, Strategic Random Networks: Why Social Networking Technology Matters (March 22, 2010). Available at SSRN: https://ssrn.com/abstract=1577209 or http://dx.doi.org/10.2139/ssrn.1577209

Benjamin Golub

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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