The Formation of Partnerships in Social Networks

GATE WP 1703, January 2017

47 Pages Posted: 13 Jan 2017

See all articles by Francis Bloch

Francis Bloch

Paris School of Economics (PSE)

Bhaskar Dutta

University of Warwick - Department of Economics

Stéphane Robin

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Min Zhu

Beijing Normal University (BNU)

Date Written: January 6, 2017

Abstract

This paper analyzes the formation of partnerships in social networks. Agents randomly request favors and turn to their neighbors to form a partnership. If favors are costly, agents have an incentive to delay the formation of the partnership. In that case, for any initial social network, the unique Markov Perfect equilibrium results in the formation of the maximum number of partnerships when players become infinitely patient. If favors provide benefits, agents rush to form partnerships at the cost of disconnecting other agents and the only perfect initial networks for which the maximum number of partnerships are formed are the complete and complete bipartite networks. The theoretical model is tested in the lab. Subjects generally play according to their equilibrium strategy and the efficient outcome is obtained over 78% of the times. Decisions are affected by the complexity of the network. Two behavioral rules are observed during the experiment: subjects accept the formation of the partnership too often and reject partnership offers when one of their neighbors is only connected to them.

Keywords: social networks, partnerships, matchings in networks, non-stationary networks, laboratory experiments

JEL Classification: D85, C78, C91

Suggested Citation

Bloch, Francis and Dutta, Bhaskar and Robin, Stéphane and Zhu, Min, The Formation of Partnerships in Social Networks (January 6, 2017). GATE WP 1703, January 2017, Available at SSRN: https://ssrn.com/abstract=2898191 or http://dx.doi.org/10.2139/ssrn.2898191

Francis Bloch (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Bhaskar Dutta

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 3478 (Phone)
44 24 7652 3032 (Fax)

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/dutta/

Stéphane Robin

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Min Zhu

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

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