Assortative matching with network spillovers

Andreas Bjerre-Nielsen

Journal of Economic Theory, 2020, vol. 187, issue C

Abstract: This paper investigates endogenous network formation by heterogeneous agents. The agents' types determine the value of linking and we incorporate spillovers as utility from indirect connections. We provide sufficient conditions for a class of networks with sorting to be stable for low to moderate spillovers; with only two types these networks are the unique pairwise stable ones. We also show that this sorting is suboptimal for moderate to high spillovers despite otherwise obeying the conditions for sorting in Becker (1973). This shows that in our sorted networks a tension between stability and efficiency is present. We analyze a policy tool to mitigate suboptimal sorting.

Keywords: Network formation; Under-connectivity; Assortative matching; Network externalities; One-sided matching (search for similar items in EconPapers)
JEL-codes: C71 C78 D61 D62 D85 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:187:y:2020:i:c:s0022053118303065

DOI: 10.1016/j.jet.2020.105028

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