nep-net New Economics Papers
on Network Economics
Issue of 2008‒02‒02
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network Games By Andrea Galeotti; Sanjeev Goyal; Matthew O. Jackson; Fernando Vega-Redondo; Leeat Yariv
  2. Beilef in Network Games (Revised version of CentER DP 2007-46) By Kets, W.
  3. Social Networks and Trust: not the Experimental Evidence you may Expect By Daniela Di Cagno; Emanuela Sciubba
  4. Networks Emerging in a Volatile World By George Ehrhardt; Matteo Marsili; Fernando Vega-Redondo
  5. Discovering the Dynamics of Smart Business Networks By Pau, L-F.
  6. What networks do to firms and what firms do to networks: Evolution of alliance portfolios in networked markets By Ozcan, Pinar
  7. Network Organizations By Fernando Vega-Redondo

  1. By: Andrea Galeotti; Sanjeev Goyal; Matthew O. Jackson; Fernando Vega-Redondo; Leeat Yariv
    Abstract: In a variety of contexts - ranging from public goods provision to information collection - a player's well-being depends on own action as well as on the actions taken by his or her neighbors. We provide a framework to analyze such strategic interactions when neighborhood structure, modeled in terms of an underlying network of connections, a¤ects payo¤s. We provide results characterizing how the network structure, an individual.s position within the network, the nature of games (strategic substitutes versus complements and positive versus negative externalities), and the level of information, shape individual behavior and payoffs.
    Keywords: Networks, Network Games, Graphical Games, Diffusion, Incomplete Information
    JEL: D85 C72 L14 Z13
    Date: 2008
  2. By: Kets, W. (Tilburg University, Center for Economic Research)
    Abstract: Networks can have an important effect on economic outcomes. Given the complexity of many of these networks, agents will generally not know their structure. We study the sensitivity of game-theoretic predictions to the specification of players? (common) prior on the network in a setting where players play a fixed game with their neighbors and only have local information on the network structure. We show that two priors are close in a strategic sense if and only if (i) the priors assign similar probabilities to all events that involve a player and his neighbors, and (ii) with high probability, a player believes, given his type, that his neighbors? conditional beliefs are close under the two priors, and that his neighbors believe, given their type, that. . . the conditional beliefs of their neighbors are close, for any number of iterations.
    Keywords: Network games;incomplete information;higher order beliefs;continuity;random networks;population uncertainty.
    JEL: C72 D82 L14 Z13
    Date: 2008
  3. By: Daniela Di Cagno; Emanuela Sciubba (School of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: We run a laboratory experiment were friendship networks are generated endogenously within an anonymous group. Our experiment builds on two phases in sequence: a network formation game and a trust game. We ?find that in those sessions where the trust game is played before the network formation game, the overall level of trust is not signi?cantly different from the one observed in a simple trust game; in those sessions where the trust game is played after the network formation game we ?find that the overall level of trust is signi?cantly lower than in the simple trust game. Hence surprisingly trust does not increase because of enforced reciprocity and moreover a common social history does affect the level of trust, but in a negative manner. Where network effects matter is in the choice of whom to trust: while we tend to trust less on average those with whom we have already interacted compared to total strangers, past history allows us to select whom to trust relatively more than others.
    Keywords: network formation, trust game, experiments
    JEL: C91 C92 L14
    Date: 2008–01
  4. By: George Ehrhardt; Matteo Marsili; Fernando Vega-Redondo
    Abstract: The paper proposes a model to study the conditions under which complex networks emerge (or not) when agents are involved in a dynamic coordination setup. The focus, however, is not on the classical issue of equilibrium selection - instead, our aim is to shed light on how agents' efforts to coordinate a¤ect the process of network formation in a large and complex environment. The model posits that, over time, new links are created if they are pro.table, and existing links disappear due to exogenous decay. Alongside this struggle between link creation and link destruction, agents' choices in the coordination game adapt to their current local conditions and thus coevolve with the social network. The dynamic behavior of the system is studied within di¤erent time scales (the long and ultralong runs), which di¤er in the role accorded to the noise that is induced by finite populations. We characterize analytically the evolution of the modelin each case and show that, depending on the time scale under consideration, the process displays discontinuous transitions in overall connectivity, resilient transformations in network topology, and equilibrium multiplicity. This behavior is akin to that observed concerning various network phenomena where coordination and network formation display mutually reinforcing roles.
    JEL: C73 D83 D85
    Date: 2008
  5. By: Pau, L-F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In an earlier paper ,was discussed the necessary evolution from smart business networks, as based on process need satisfaction and governance, into business genetics [1] based on strategic bonds or decay and opportunistic complementarities. This paper will describe an approach and diffusion algorithms whereby to discover the dynamics of emergent smart business network structures and their performance in view of collaboration patterns over time. Some real life early analyses of dynamics are discussed based on cases and date from the high tech sector. Lessons learnt from such cases are also given on overall smart network dynamics with respect to local interaction strategies, as modelled like in business genetics by individual partner profiles, goals and constraints. It shows the weakness of static “business operating systemsâ€, as well as the possibly destabilizing clustering effects amongst nodes linked to filtering, evaluation and own preferences.
    Keywords: smart business networks;SBN;business genetics;network performance
    Date: 2007–12–03
  6. By: Ozcan, Pinar (IESE Business School)
    Abstract: This study explores the question of how alliance portfolios change over time. In the setting of the U.S. wireless gaming market, I collected real-time and longitudinal data on entrepreneurial game publishers over two and a half years. This process revealed that alliance portfolios of firms can grow or deteriorate rapidly through virtuous or vicious cycles, depending on their starting position in a networked market. Those firms in a virtuous cycle have the additional advantage that they can use resource-dependence strategies to fuel the virtuous cycle. Finally, I find that changes in a firm's alliance portfolio occur simultaneously with other firm-level changes, such as physical growth, new rounds of financing, public offering and game coverage. The findings have potential contributions to literature at the firm, portfolio, and network levels. Overall, the picture provided is one that advocates multi-level and longitudinal analysis for the understanding of firm, portfolio, and network-level outcomes deriving from firm-level interactions and portfolio strategies.
    Keywords: Alliance portfolios; firm evolution; strategy; resource dependence;
    Date: 2007–09–11
  7. By: Fernando Vega-Redondo
    Abstract: It is common to define a network organization as one that is fast and flexible in adapting to changes in the underlying environment. But besides the short-run advantages of adaptability, fast changes in the structure of the organization can also be detrimental in the longer run. This happens, in particular, because agents need to depend widely on that structure to channel appropriately (and thus speed up) search. I discuss the trade-off between adaptability and structural stability in a changing environment where, if the structure of the organization adjusts, information on the exact nature of the change becomes known only with some lag. The main conclusion obtained is that, as environment becomes more volatile, the optimal mode of the organization sharply switches from being totally flexible to being completely rigid, i.e. no intermediate configurations are essentially ever optimal. This has stark implications on the dichothomy of stability versus change that has been highlighted by recent organization literature.
    JEL: D20 D83 D85
    Date: 2008

This nep-net issue is ©2008 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.