Assortative matching with network spillovers

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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.
Original languageEnglish
Article number105028
JournalJournal of Economic Theory
Number of pages31
Publication statusPublished - 1 May 2020

    Research areas

  • Faculty of Social Sciences - Network formation, Under-connectivity, Assortative matching, Network externalities, One-sided matching

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