Essays in Social and Economic Networks

Abstract

This thesis consists of three chapters, and they concern the formation of social and economic networks. In particular, this thesis investigates the solution concepts of Nash equilibrium and pairwise stability in models of strategic network formation. While the first chapter studies the robustness property of Nash equilibrium in network formation games, the second and third chapters investigate the testable implication of pairwise stability in networks. first chapter of my thesis is titled The Robustness of Network Formation Games. In this chapter, I propose a notion of equilibrium robustness, and analyze the robustness of Nash equilibria in a class of well-studied network formation games that suffers from multiplicity of equilibria. Under this notion of robustness, efficiency is also achieved. A Nash equilibrium is k-robust if k is the smallest integer such that the Nash equilibrium network can be perturbed by adding some k number of links. This chapter shows that acyclic networks are particularly fragile: with the exception of the periphery-sponsored star, all Nash equilibrium networks without cycles are 1-robust, or minimally robust. main result of this paper then proves that for all Nash equilibria, cyclic or acyclic, the periphery-sponsored star is the most robust Nash equilibrium. Moreover the periphery-sponsored star is by far the most robust in the sense that asymptotically in large network, it must be at least twice as robust as any other Nash equilibria. second chapter of my thesis is titled On the Consistency of Network Data with Pairwise Stability: Theory. In this chapter, I characterize the consistency of social network data with pairwise stability, which is a solution concept that in a pairwise stable network, no agents prefer to deviate by forming or dissolving links. I take preferences as unobserved and nonparametric, and seek to characterize the networks that are consistent with pairwise stability. Specifically, given data on a single network, I provide a necessary and sufficient condition for the existence of some preferences that would induce this observed network as pairwise stable. When such preferences exist, I say that the observed network is rationalizable as pairwise stable. Without any restriction on preferences, any network can be rationalized as pairwise stable. Under one assumption that agents who are observed to be similar in the network have similar preferences, I show that an observed network is rationalizable as pairwise stable if and only if it satisfies the Weak Axiom of Revealed Pairwise Stability (WARPS). This result is generalized to include any arbitrary notion of similarity. third chapter of my thesis is titled On the Consistency of Network Data with Pairwise Stability: Application. In this chapter, I investigate the extent to which real-world networks are consistent with WARPS. In particular, using the network data collected by Banerjee et al. (2013), I explore how consistency with WARPS is empirically associated with economic outcomes and social characteristics. The main empirical finding is that targeting of nodes that have central positions in social networks to increase the spread of information is more effective when the underlying networks are also more consistent with WARPS.