Making a Swap: Network Formation with Increasing Marginal Costs

Evan Sadler

Journal of Political Economy, 2026, vol. 134, issue 8, 2362 - 2394

Abstract: I propose a general theory of strategic network formation based on increasing marginal linking costs and vertical heterogeneity among the players. In the spirit of revealed preference, I describe the entire set of graphs that can be stable, without making any parametric assumptions about players’ preferences. Stable graphs feature assortativity and clustering, and I highlight conditions that lead to hierarchies and cliquish behavior. Extensions shed light on which findings are robust and which are more fragile. Collectively, these results map interpretable properties of preferences to particular network structures and furnish new tools to study strategic network formation.

Date: 2026
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