Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74205
Authors: 
Ule, Aljaž
Goeree, Jacob K.
Riedl, Arno
Year of Publication: 
2007
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 65.2007
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.
Subjects: 
Network Formation
Experiment
Heterogeneity
Private Information
JEL: 
C72
C92
D82
D85
Document Type: 
Working Paper

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