Advances in Strategic Network Formation

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Imagine a world where everybody is calculative in building relationships. In this book I model such a scenario and ask how this behavior affects the structure of social networks. Applications include friendship networks, personal business networks, R&D, collaborations, strategic alliances, and trade among countries. After discussing the formal modeling approach, I put a focus on two types of linking goals. One is the gain of access to information and support by having many other actors in close reach, the other one is the bargaining position that is attained by being a broker for others. It turns out that the interaction of two goals leads to non-trivial dynamics of the network structure. Moreover, it can be observed that a typical feature of friendship networks is destroyed by incentives for advantageous network positions. Finally, I turn to a focal problem in strategic network formation: there is a general conflict between stability, based on individual interest, and efficiency, based on collective welfare. I study the sources of inefficiency by analyzing the external effects of link formation.