Superstars need Social Benefits: An Experiment on Network Formation

Date: 2013-08-08
By: Boris van Leeuwen (University of Amsterdam)
Theo Offerman (University of Amsterdam)
Arthur Schram (University of Amsterdam)
We investigate contributions to the provision of public goods on a network when efficient provision requires the formation of a star network. We provide a theoretical analysis and study behavior in a controlled laboratory experiment. In a 2×2 design, we examine the effects of group size and the presence of (social) benefits for incoming links. We find that social benefits are highly important. They facilitate convergence to equilibrium networks and enhance the stability and efficiency of the outcome. Moreover, in large groups social benefits encourage the formation of superstars: star networks in which the core contributes more than expected in the stage-game equilibrium. We show that this result is predicted by a repeated game equilibrium.
Keywords: Network formation, networked public goods, peer production, social benefits, open source software
JEL: C91 D85 H41

Methods of Identification in Social Networks

Date: 2014-08
By: Bryan S. Graham
Social and economic networks are ubiquitous, serving as contexts for job search, technology diffusion, the accumulation of human capital and even the formulation of norms and values. The systematic empirical study of network formation – the process by which agents form, maintain and dissolve links – within economics is recent, is associated with extraordinarily challenging modeling and identification issues, and is an area of exciting new developments, with many open questions. This article reviews prominent research on the empirical analysis of network formation, with an emphasis on contributions made by economists.
JEL: C23 C25 D85

Equilibrium Selection in Experimental Games on Networks

Gary Charness, Francesco Feri, Miguel A. Meléndez-Jiménez, and Matthias Sutte (2012) “Equilibrium Selection in Experimental Games on Networks." working paper, Department of Economics, UC Santa Barbara. [pdf] [ideas]



Abstract. We study behavior and equilibrium selection in experimental network games. We vary two  important  factors:  (a) actions are either  strategic  substitutes or  strategic complements, and (b)  subjects  have  either  complete  or  incomplete  information  about  the  structure  of  a  random network.  Play  conforms  strongly  to  the  theoretical  predictions,  providing  an  impressive behavioral  confirmation  of  the  Galeotti,  Goyal,  Jackson,  Vega-Redondo,  and  Yariv  (2010) model. The degree of  equilibrium play  is  striking,  even with  incomplete  information. We  find that  under  complete  information,  subjects  typically  play  the  stochastically-stable  (inefficient) equilibrium when the game involves strategic substitutes, but play the efficient one with strategic complements.   Our  results  suggest  that  equilibrium multiplicity may  not  be  a major  concern Subjects’ actions and realized outcomes under  incomplete  information depend strongly on both the degree and the connectivity. When there are multiple equilibria, subjects begin by playing the efficient equilibrium, but eventually converge to the inefficient one.

Networks in Economics

Date: 2012-06
By: Zenou, Yves
We provide an overview on networks in economics. We first look at the theoretical aspects of network economics using a game-theoretical approach. We derive some results on games on networks and network formation. We also study what happens when agents choose both links and actions. We then examine how these models can be used to address some applied and empirical-relevant questions by mainly focusing on labor-market networks and crime networks. We provide some empirical evidence on these two types of networks and address some policy implications of the models.
Keywords: criminal networks; games on networks; labor networks; network formation; Social networks
JEL: A14

The Adoption Process of Payment Cards -An Agent- Based Approach

Date: 2012-05
By: Biliana Alexandrova-Kabadjova
Sara Gabriela Castellanos Pascacio
Alma L. García-Almanza
We investigate the payment card’s adoption rate under consumers’ and merchants’ awareness of network externalities, given two levels of Interchange Fees in a multiagent card market. For the purpose of our research, in multiple instances of the model (scenarios) the investigated effects are analyzed over the complete process of adoption, until the market’s saturation point is achieved. For each scenario, a comparison is made between two different levels of Interchange Fees and different degrees of consumers’ and merchants’ awareness. We model explicitly the interactions between consumers and merchants at the point of sale. We allow card issuers to charge consumers with fixed fees and provide net benefits from card usage, whereas acquirers can charge fixed and transactional fees to merchants.
Keywords: Two-sided markets, financial services, network formation.