Statistics – Applications
Scientific paper
2010-04-06
Statistics
Applications
34 pages, 3 figures; v2 and v3 correct typographical errors
Scientific paper
This paper develops strategic foundations for an important statistical model of random networks with heterogeneous expected degrees. Based on this, we show how social networking services that subtly alter the costs and indirect benefits of relationships can cause large changes in behavior and welfare. In the model, agents who value friends and friends of friends choose how much to socialize, which increases the probabilities of links but is costly. There is a sharp transition from fragmented, sparse equilibrium networks to connected, dense ones when the value of friends of friends crosses a cost-dependent threshold. This transition mitigates an extreme inefficiency.
Golub Benjamin
Livne Yair
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