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Social connectedness and local contagion

Social connectedness and local contagion
Social connectedness and local contagion
We study a coordination game among agents in a network. The agents choose whether to take action (e.g., adopting a new technology) in an uncertain environment that yields increasing value in the actions of neighbors. We develop an algorithm that fully partitions the network into communities (coordination sets) within which agents have the same propensity to adopt. Our main finding is that a novel measure of network connectedness, which we term “social connectedness”, determines the propensity to adopt for each agent. Social connectedness captures both the number of links each agent has within her community (interconnectedness) as well as the number of links she has with members of other communities who have a higher propensity to adopt (embeddedness). There is a single coordination set if and only if the network is balanced —that is, the average degree of each subnetwork is no larger than the average degree of the network. Finally, we demonstrate that contagion is localized within coordination sets, such that a shock to an agent uniformly affects this agent and all members of her coordination set but has no impact on the other agents in the network.
0034-6527
372–410
Leister, C. Matthew
5855f7f4-f65b-4c44-911a-a47ee61b940a
Zenou, Yves
38bf0c72-462b-4c08-8fd1-ce365b0296dc
Zhou, Junjie
153ab34c-4476-4dd8-969b-a3981012f589
Leister, C. Matthew
5855f7f4-f65b-4c44-911a-a47ee61b940a
Zenou, Yves
38bf0c72-462b-4c08-8fd1-ce365b0296dc
Zhou, Junjie
153ab34c-4476-4dd8-969b-a3981012f589

Leister, C. Matthew, Zenou, Yves and Zhou, Junjie (2022) Social connectedness and local contagion. The Review of Economic Studies, 89 (1), 372–410. (doi:10.1093/restud/rdab022).

Record type: Article

Abstract

We study a coordination game among agents in a network. The agents choose whether to take action (e.g., adopting a new technology) in an uncertain environment that yields increasing value in the actions of neighbors. We develop an algorithm that fully partitions the network into communities (coordination sets) within which agents have the same propensity to adopt. Our main finding is that a novel measure of network connectedness, which we term “social connectedness”, determines the propensity to adopt for each agent. Social connectedness captures both the number of links each agent has within her community (interconnectedness) as well as the number of links she has with members of other communities who have a higher propensity to adopt (embeddedness). There is a single coordination set if and only if the network is balanced —that is, the average degree of each subnetwork is no larger than the average degree of the network. Finally, we demonstrate that contagion is localized within coordination sets, such that a shock to an agent uniformly affects this agent and all members of her coordination set but has no impact on the other agents in the network.

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Coordination_Networks_2021_March - Accepted Manuscript
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Accepted/In Press date: 26 March 2021
e-pub ahead of print date: 10 May 2021
Published date: 1 January 2022

Identifiers

Local EPrints ID: 448065
URI: http://eprints.soton.ac.uk/id/eprint/448065
ISSN: 0034-6527
PURE UUID: 664040f5-861c-4a2b-ba3a-7d0425f07745
ORCID for Yves Zenou: ORCID iD orcid.org/0000-0001-6516-0812

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Date deposited: 01 Apr 2021 15:41
Last modified: 17 Mar 2024 06:28

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Contributors

Author: C. Matthew Leister
Author: Yves Zenou ORCID iD
Author: Junjie Zhou

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