Spatial social networks

Abstract

We introduce a spatial cost topology in the network formation model analyzed by Jackson and Wolinsky, Journal of Economic Theory (1996), 71: 44-74. This cost topology might represent geographical, social, or individual differences. It describes variable costs of establishing social network connections. Participants form links based on a cost-benefit analysis. We examine the pairwise stable networks within this spatial environment. Incentives vary enough to show a rich pattern of emerging behavior. We also investigate the subgame perfect implementation of pairwise stable and efficient networks. We construct a multistage extensive form game that describes the formation of links in our spatial environment. Finally, we identify the conditions under which the subgame perfect Nash equilibria of these network formation games are stable.JEL classification: A14, C70, D20We are very grateful for the constructive comments of Matt Jackson and an anonymous referee. We also like to thank Vince Crawford, Marco Slikker, Edward Droste, Hans Haller, Dimitrios Diamantaras, and Sudipta Sarangi for comments on previous drafts of this paper. We acknowledge Jay Hogan for his programming support.

An Overview of Social Networks and Economic Applications

“…Thus, a strategic formation model, with quite natural assumptions about costs and benefits can explain why we might expect small world network phenomena. This point appears in various forms in Johnson and Gilles (2000), Carayol and Roux (2003) and Jackson and Rogers (2005). Thus strategic models of network formation are complementary to random-graph and statistical models of network formation, not only in their methods and approach, and the settings to which they might apply, but also in the types of insights that they provide into which network structures should emerge and why.…”

A network experiment in continuous time: The influence of link costs

“…Recent economic experiments that consider network formation are Deck and Johnson (2004), Plott and Callander (2002), and Falk and Kosfeld (2003). The experiment by Deck and Johnson is inspired by the network formation model of Johnson and Gilles (2000) which is different from the theoretical framework we want to apply in this paper. Plott and Callander (2002) carry out the first network formation experiment.…”

Networks and Economic Behavior

“…Thus, as long as there are not too many longdistance links they can be very attractive and so the network will have many local links and high clustering among nodes that are close to each other, and then some longer distance links that ensure that average path lengths do not grow to be too large. Various forms of the spatial connections models are examined by Johnson and Gilles (2000), Carayol and Roux (2003), and Jackson and Rogers (2005). Price (1965) and Albert, Jeong, and Barabasi (2000) note other interesting features of some networks that differ from a network where links are formed uniformly at random.…”