Network Formation with Heterogeneous Players

Tinbergen Institute Discussion Paper No. 2002-069/1

25 Pages Posted: 23 Jul 2002

See all articles by Andrea Galeotti

Andrea Galeotti

University of Essex

Sanjeev Goyal

University of Cambridge

Date Written: May 2002

Abstract

This paper studies network formation in settings where players are heterogeneous with respect to benefits as well as the costs of forming links. Our results demonstrate that centrality, center-sponsorship and short network diameter are robust features of equilibrium networks. We find that in a society with many groups, where it is cheaper to connect within groups as compared to across groups, strategic play by individuals leads to a network architecture in which there is a core group which is entirely internally connected while all the other groups are entirely externally linked and hence completely fragmented. Since internal/within group links are cheaper to form, this implies that individual incentives may generate a significant waste of valuable social resources.

Keywords: Noncooperative games, Network formation, Heterogeneity

JEL Classification: C72, C79

Suggested Citation

Galeotti, Andrea and Goyal, Sanjeev, Network Formation with Heterogeneous Players (May 2002). Tinbergen Institute Discussion Paper No. 2002-069/1, Available at SSRN: https://ssrn.com/abstract=318686 or http://dx.doi.org/10.2139/ssrn.318686

Andrea Galeotti (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Sanjeev Goyal

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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