Social Network Formation and Strategic Interaction in Large Networks*
نویسندگان
چکیده
I present a dynamic network formation model that aims to explain why some empirical degree distributions exhibit the increasing hazard rate property (IHRP). In my model, a sequentially arriving node forms a link with one existing node through a bilateral agreement. A newborn node prefers a highly linked node; however, the more links an existing node has, the more the marginal return from an additional link diminishes. I prove that the IHRP emerges if and only if the latter effect prevails over the former. I present two implications of the IHRP for strategic interactions in networks. First, when there is uncertainty about neighboring agents’ connectivity, the IHRP guarantees that a unique Bayesian equilibrium exists in a network game with strategic complementarities. Second, the IHRP characterizes a monotone revenue-maximizing mechanism with allocative externalities.
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تاریخ انتشار 2015