Volume of Trade and Dynamic Network Formation in Two-Sided Economies

Roland Pongou and Roberto Serrano

No 2013-6, Working Papers from Brown University, Department of Economics

Abstract: We study the long-run stability of trade networks in a two-sided economy of agents labelled men and women. Each agent desires relationships with the other type, but having multiple partners is costly. This cost-bene?t trade-o§ results in each agent having a single-peaked utility over the number of partners?the volume of trade?, the peak being greater for men than for women. We propose a stochastic matching process in which self-interested agents form and sever links over time. Links can be added or deleted, sometimes simultaneously by a single agent. While the unperturbed process yields each pairwise stable network as an absorbing state, stochastic stability in two perturbed processes provides a signi?cant re?nement, leading respectively to egalitarian and anti-egalitarian pairwise stable networks. This has implications for the concentration on each side of the market of a random information shock. The analysis captures stylized facts, related to market fragmentation, concentration and contagion asymmetry, in several two-sided economies.

Keywords: Two-sided networks; pairwise stability; stochastic stability; herd externality; informational cascade; fragmentation; concentration; economy thinness; contagion asymmetry. (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-gth, nep-mic and nep-net
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Volume of trade and dynamic network formation in two-sided economies (2016)
Working Paper: Volume of Trade and Dynamic Network Formation in Two-Sided Economies (2016)
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