Bad Networks

Abstract

We analyze a model of social networks where there are benefits to beingboth on or off the network. Multiple equilibria naturally arise, including anequilibrium in which all agents choose to join a socially sub-optimal or badnetwork. Focusing on bad networks, we highlight the role of instigators whoreceive a private benefit from joining the network. Even if this private benefitis arbitrarily small, for any positive mass of instigators the unique equilibriumis full participation on a bad network. Finally, we offer a micro-foundationfor the forces that give rise to bad social networks based on a competition foresteem. The social network can amplify the benefits of esteem on the network,and this is consistent with empirical findings of people feeling “trapped” onsocial networks.

Keywords: Esteem, instigators, social networks.