Emergent Star Networks with Ex Ante Homogeneous Agents

51 Pages Posted: 18 Jun 2012

See all articles by Rong Rong

Rong Rong

Weber State University (WSU)

Daniel Houser

Interdisciplinary Center for Economic Science

Date Written: June 18, 2012

Abstract

The acquisition and dispersion of information, a critical aspect of economic decisions, can occur through a network of agents (Jackson, 2009). Empirical and theoretical findings suggest that an efficient information dispersion network takes the form of a star: small numbers of agents gather information and distribute it to a large group. Despite these findings, controlled tests of this theory failed to find evidence of the emergence of such networks with an exception of Goeree et al (2008), which reports frequent star network formation with ex ante heterogeneous agents and perfect information. Empirical evidence suggests that these conditions may not always be feasible in natural environments (Feick and Price, 1987; Conley and Udry, 2010). Complement to earlier experimental research, we study institutional conditions under which star networks emerge in the presence of ex ante homogeneous agents. We find that investment limits and the "right-of-first-refusal," both of which regularly coexist with star networks in natural environments, have a surprisingly strong ability to promote the formation of star networks with ex ante homogeneous agents. Using a cluster analysis, we trace the large positive effects of these institutions to the impact they have on individual's behavioral rules. In particular, we find that these institutions encourage individual rationality as well as positive habits, which then lead to the frequent and stable emergence of star networks. Our results may have important implications for environments characterized by ex ante homogeneous agents, e.g., those found in technology, marketing and agricultural sectors.

Keywords: Star Networks, cluster analysis, information

Suggested Citation

Rong, Rong and Houser, Daniel, Emergent Star Networks with Ex Ante Homogeneous Agents (June 18, 2012). GMU Working Paper in Economics No. 12-33, Available at SSRN: https://ssrn.com/abstract=2087104 or http://dx.doi.org/10.2139/ssrn.2087104

Rong Rong

Weber State University (WSU) ( email )

3802 University Circle
Ogden, UT 84408
United States

Daniel Houser (Contact Author)

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
170
Abstract Views
1,371
Rank
347,949
PlumX Metrics