In Search of Stars: Network Formation among Heterogeneous Agents

40 Pages Posted: 15 Oct 2005

See all articles by Jacob K. Goeree

Jacob K. Goeree

University of Zurich

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Netspar

Aljaz Ule

University of Amsterdam - Center for Research in Experimental Economics and Political Decision-Making (CREED)

Date Written: June 2007

Abstract

This paper reports results from a laboratory experiment on network formation among heterogeneous agents. The experimental design extends the Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. Furthermore, agents' types may be common knowledge or private information. In all treatments, the (efficient) equilibrium network has a "star" structure. With homogeneous agents, equilibrium predictions fail completely. In contrast, with heterogeneous agents stars frequently occur, often with the high-value or low-cost agent in the center. Stars are not born but rather develop: with a high-value agent, the network's centrality, stability, and efficiency all increase over time. Probit estimations based on best-response behaviour and other-regarding preferences are used to analyze individual linking behavior. Our results suggest that heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.

Keywords: Network Formation, Experiment, Heterogeneity, Private Information

JEL Classification: C72, C92, D82, D85

Suggested Citation

Goeree, Jacob K. and Riedl, Arno M. and Ule, Aljaz, In Search of Stars: Network Formation among Heterogeneous Agents (June 2007). IZA Discussion Paper No. 1754, FEEM Working Paper No. 65.2007, Available at SSRN: https://ssrn.com/abstract=822725 or http://dx.doi.org/10.2139/ssrn.822725

Jacob K. Goeree

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

HOME PAGE: http://www.econ.uzh.ch/faculty/jgoeree.html

Arno M. Riedl (Contact Author)

Maastricht University ( email )

Department of Microeconomics & Public Economics
P.O. Box 616
Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.arnoriedl.com

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Aljaz Ule

University of Amsterdam - Center for Research in Experimental Economics and Political Decision-Making (CREED) ( email )

Faculty of Economics and Econometrics
Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
172
Abstract Views
3,475
Rank
314,280
PlumX Metrics