Networks pervade social and economic life, and they play a prominent role in explaining a huge variety of social and economic phenomena. Standard economic theory did not give much credit to the role of networks until the early 1990s, but since then the study of the theory of networks has blossomed. At the heart of this research is the idea that the pattern of connections between individual rational agents shapes their actions and determines their rewards. The importance of connections has in turn motivated the study of the very processes by which networks are formed. In Connections, Sanjeev Goyal puts contemporary thinking about networks and economic activity into context. He develops a general framework within which this body of research can be located. In the first part of the book he demonstrates that location in a network has significant effects on individual rewards and that, given this, it is natural that individuals will seek to form connections to move the network in their favor. This idea motivates the second part of the book, which develops a general theory of network formation founded on individual incentives. Goyal assesses the robustness of current research findings and identifies the substantive open questions. Written in a style that combines simple examples with formal models and complete mathematical proofs, Connections is a concise and self-contained treatment of the economic theory of networks, one that should become the natural source of reference for graduate students in economics and related disciplines.
Acknowledgements ix Chapter 1: Introduction 1 1.1 Themes 1 1.2 Networks in Economics 4 1.3 The Economic Approach and Other Subjects 7 1.4 A Note on Style 8 Chapter 2: Networks: Concepts and Empirics 9 2.1 Introduction 9 2.2 Concepts 9 2.3 Properties of Empirical Networks 20 Chapter 3: Games on Networks 25 3.1 Introduction 25 3.2 General Model 27 3.3 Applications 34 3.4 Discussion of Two Assumptions 49 3.5 Concluding Remarks 53 3.6 Appendix 55 Chapter 4: Coordination and Cooperation 63 4.1 Introduction 63 4.2 Coordination Games 66 4.3 Games of Conflict 75 4.4 Concluding Remarks 80 4.5 Appendix 81 Chapter 5: Social Learning 87 5.1 Introduction 87 5.2 Theoretical Framework 89 5.3 Learning from Neighbors 94 5.4 Related Themes 102 5.5 Concluding Remarks 104 5.6 Appendix 105 Chapter 6: Social Networks in Labor Markets 113 6.1 Introduction 113 6.2 The Social Transmission of Job Information 116 6.3 Adverse Selection and Referrals 120 6.4 The Use of Social Networks: Empirical Evidence 124 6.5 Concluding Remarks 128 6.6 Appendix 128 Chapter 7: Strategic Network Formation: Concepts 143 7.1 Introduction 143 7.2 One-Sided Links 147 7.3 Two-Sided Links 150 7.4 Efficiency and Equity 158 7.5 Concluding Remarks 158 7.6 Appendix 159 Chapter 8: One-Sided Link Formation 163 8.1 Introduction 163 8.2 A Simple Model of Link Formation 165 8.3 Extensions 171 8.4 Experiments and Empirical Regularities 182 8.5 Research in Other Subjects 185 8.6 Concluding Remarks 188 8.7 Appendix 188 Chapter 9: Two-Sided Link Formation 199 9.1 Introduction 199 9.2 Network Formation: Four Applications 200 9.3 Stability and Efficiency 215 9.4 Unequal Degrees and Payoffs 221 9.5 Concluding Remarks 227 9.6 Appendix 229 Chapter 10: Research Collaboration among Firms 245 10.1 Introduction 245 10.2 Why Extensive and Nonexclusive Links? 247 10.3 Collaboration among Competing Firms 249 10.4 Related Themes 259 10.5 Empirical Patterns 262 10.6 Concluding Remarks 265 10.7 Appendix 266 References 271 Index 285
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