Social Networks and Institutional Development

Abstract

This paper seeks to explain how connections influence the formation of group structures, and what happen to these structures as individual preferences change. It offers an alternative approach to the study of institutional development by employing social network models. The findings show that efficient structures, which maximize the overall wealth of the members by reducing interaction costs, are more likely to exist in which transfers of wealth occur. These structures often function under centralized institutions, which connect and transfer resources from individual members. By focusing on multi-player network analysis, the paper gives insight into how different types of stable institutions may develop and the overall wealth is distributed.