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In Search of Stars: Network Formation among Heterogeneous Agents


Goeree, Jacob K; Riedl, Arno; Ule, Aljaz (2009). In Search of Stars: Network Formation among Heterogeneous Agents. Working paper series / Institute for Empirical Research in Economics No. 435, University of Zurich.

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 introducing 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. While equilibrium predictions fail completely with homogeneous agents, star networks frequently occur with heterogeneous agents. Stars are not born but rather develop: with a high-value agent, the network's centrality, stability, and efficiency all increase over time. A structural econometric model based on best response dynamics and other-regarding preferences is used to analyze individual linking behavior. Maximum-likelihood estimates of the underlying structural parameters, obtained by pooling data from several treatments,nallow us to explain the main treatment effects.

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 introducing 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. While equilibrium predictions fail completely with homogeneous agents, star networks frequently occur with heterogeneous agents. Stars are not born but rather develop: with a high-value agent, the network's centrality, stability, and efficiency all increase over time. A structural econometric model based on best response dynamics and other-regarding preferences is used to analyze individual linking behavior. Maximum-likelihood estimates of the underlying structural parameters, obtained by pooling data from several treatments,nallow us to explain the main treatment effects.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:September 2009
Deposited On:29 Nov 2011 20:09
Last Modified:12 Aug 2017 12:46
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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