Nestedness in Networks: A Theoretical Model and Someapplications

65 Pages Posted: 1 Mar 2012

See all articles by Michael König

Michael König

University of Zurich - Department of Economics

Claudio J. Tessone

ETH Zürich

Yves Zenou

Monash University - Department of Economics; Stockholm University; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: January 2012

Abstract

We develop a dynamic network formation model that can explain the observed nestedness in real-world networks. Links are formed on the basis of agents’ centrality and have an exponentially distributed life time. We use stochastic stability to identify the networks to which the network formation process converges and find that they are nested split graphs. We completely determine the topological properties of the stochastically stable networks and show that they match features exhibited by real-world networks. Using four different network datasets, we empirically test our model and show that it fits well the observed networks.

Keywords: Bonacich centrality, nested split graphs, nestedness, network formation

JEL Classification: A14, C63, D85

Suggested Citation

König, Michael and Tessone, Claudio J. and Zenou, Yves, Nestedness in Networks: A Theoretical Model and Someapplications (January 2012). CEPR Discussion Paper No. DP8807. Available at SSRN: https://ssrn.com/abstract=2013798

Michael König (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Claudio J. Tessone

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

HOME PAGE: http://www.sg.ethz.ch/people/tessonec

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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