A strategic model of social and economic networks

Matthew O. Jackson*, Asher Wolinsky

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1431 Scopus citations

Abstract

We study the stability and efficiency of social and economic networks, when self-interested individuals can form or sever links. First, for two stylized models, we characterize the stable and efficient networks. There does not always exist a stable network that is efficient. Next, we show that this tension persists generally: to assure that there exists a stable network that is efficient, one is forced to allocate resources to nodes that are not responsible for any of the production. We characterize one such allocation rule: the equal split rule, and another rule that arises naturally from bargaining of the players. Journal Economic Literature Classification Numbers: A14, D20, J00.

Original languageEnglish (US)
Pages (from-to)44-74
Number of pages31
JournalJournal of Economic Theory
Volume71
Issue number1
DOIs
StatePublished - Oct 1996

Funding

* We thank Kyle Bagwell, Dawn Iacobucci, Ehud Kalai, Bart Lipman, James Montgomery, Roger Myerson, Anne van den Nouweland, Jeroen Swinkels, Sang-Seung Yi, and an anonymous referee, for helpful written comments and or conversations. Our understanding and presentation of the results have benefited from the interaction in seminar presentations, whose participants we thank without listing. Support from U.S.-Israel BSF Grant 90-00165 is gratefully acknowledged.

ASJC Scopus subject areas

  • Economics and Econometrics

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