Heterogeneity and Networks

© 2018 Elsevier B.V. This chapter shows that networks can have large and differentiated effects on behavior and then argues that social and economic pressures facilitate the formation of heterogeneous networks. Thus networks can play an important role in understanding the wide diversity in human behavior and in economic outcomes

Networks in economics: a perspective on the literature

The Oxford Handbook of the Economics of Networks represents the frontier of research into how and why networks they form, how they influence behavior, how they help govern outcomes in an interactive world, and how they shape collective ..

A network approach to public goods

Suppose agents can exert costly effort that creates nonrival, heterogeneous benefits for each other. At each possible outcome, a weighted, directed network describing marginal externalities is defined. We show that Pareto efficient outcomes are those at which the largest eigenvalue of the network is 1. An important set of efficient solutions - Lindahl outcomes - are characterized by contributions being proportional to agents' eigenvector centralities in the network. The outcomes we focus on are motivated by negotiations. We apply the results to identify who is essential for Pareto improvements, how to efficiently subdivide negotiations, and whom to optimally add to a team

The cost of segregation in (social) networks

This paper investigates the welfare effect of income redistribution in the private provision of public goods on networks. We first show that the welfare effect of income redistribution is determined by Bonacich centrality. Then we develop an index based on the network structure of interactions, which, roughly speaking, measures the welfare effect of income redistribution confined to a component of contributors. The proposed index vanishes when applied to large components of contributors that display special segregated interactions, which suggests an “asymptotic neutrality” of redistributive policies. JEL classification C72; D31; H4