Stability in a Network Economy: The Role of Institutions

40 Pages Posted: 8 Oct 2014  

Robert P. Gilles

Queen's University Management School

Emiliya A. Lazarova

Queen's University Belfast

Pieter H. M. Ruys

Tilburg University - CentER

Date Written: October 2014

Abstract

We consider an economy in which agents are embedded in a network of potential value-generating relationships. Agents are assumed to be able to participate in three types of economic interactions: Autarkic self-provision; bilateral interaction; and multilateral collaboration.

We introduce two stability concepts and provide sufficient and necessary conditions on the network structure that guarantee existence, both in the absence of externalities from cooperation as well as under crowding conditions. We show that institutions such as socioeconomic roles and hierarchical leadership structures are necessary for stability. In particular, the stability of more complex economic outcomes requires more stringent restrictions on the underlying network which imply more complex institutional rules that govern economic interactions. Thus, we provide support for the theory of co-evolution of institutions and economic outcomes.

Keywords: Network economies, Economic outcomes, Stability

JEL Classification: C72, D71, D85

Suggested Citation

Gilles, Robert P. and Lazarova, Emiliya A. and Ruys, Pieter H. M., Stability in a Network Economy: The Role of Institutions (October 2014). TILEC Discussion Paper No. 2014-036. Available at SSRN: https://ssrn.com/abstract=2506643 or http://dx.doi.org/10.2139/ssrn.2506643

Robert P. Gilles

Queen's University Management School ( email )

25 University Sq
Belfast, Northern Ireland BT7 1NN
United Kingdom

Emiliya A. Lazarova

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Pieter H. M. Ruys (Contact Author)

Tilburg University - CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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