Strategic Random Networks: Why Social Networking Technology Matters

Benjamin Golub, Yair Livne
2010 Social Science Research Network  
In this model of network formation, agents who value friends and friends of friends choose how intensely to socialize in a group; socializing increases the probabilities of friendships but is costly. The strategic random networks formed in a symmetric equilibrium exhibit a sharp transition from a fragmented, low-intensity regime to a connected, high-intensity one when the value of friends of friends crosses a cost-dependent threshold, and this transition mitigates an extreme inefficiency. The
more » ... inefficiency. The theory sheds light on how social networking technology that subtly alters the costs and indirect benefits of relationships can cause large changes in behavior and welfare. It also suggests why there are such large differences in the amount of "social capital" -interpreted as value generated from the network -built up in different groups facing different economic fundamentals.
doi:10.2139/ssrn.1577209 fatcat:ue35syswrve5vlzir3se5rhqke