Network formation and efficiency in linear-quadratic games

An experimental study

Bibliographic Data

ID9709397
AuthorsGergely Horváth (0000-0003-3795-0213, Duke Kunshan University, corresponding author)
Year2024
Volume135
Issue665
Pages212-234
Publication date2024-12-09
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (PUBLISHER • GB)
DOI10.1093/ej/ueae073
OpenAlexW4392737072
LanguageEN
Citations received1
References cited54

We experimentally study effort provision and network formation in the linear-quadratic game characterised by positive externality and complementarity of effort choices among network neighbours. We compare experimental outcomes to the equilibrium and efficient allocations and study the impact of group size and linking costs. We find that individuals overprovide effort relative to the equilibrium level on the network they form. However, their payoffs are lower than the equilibrium payoffs because they create fewer links than is optimal, which limits the beneficial spillover effects of effort provision. Reducing the linking costs does not significantly increase the connectedness of the network and the welfare loss is higher in larger groups. Individuals connect to the highest-effort providers in the group and ignore links to relative low-effort providers, even if those links would be beneficial to form. This effect explains the lack of links in the network

Complementarity (molecular biology · Economics · Externality · Microeconomics · Network effect · Network formation · Quadratic equation · Social connectedness · Spillover effect · Welfare · Computer Science · Economic Policies and Impacts · Experimental Behavioral Economics Studies · Game Theory and Applications · Mathematics

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