Stability in a network economy: The role of institutions

Pieter Ruys, E.A. Lazarova, R.P. Gilles

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We consider an economy in which agents are embedded in a network of potential valuegenerating relationships. Agents are assumed to be able to participate in three types of economic interactions: Autarkic self-provision; bilateral interaction; and multilateral collaboration through endogenously provided platforms. We introduce two stability concepts and provide sufficient and necessary conditions on the network structure that guarantee existence, in cases ofthe absence of externalities, linkbased externalities and crowding externalities. We show that institutional arrangements based on socioeconomic roles and leadership guarantee stability. In particular, the stability of more complex economic outcomes requires more strict and complex institutional rules
to govern economic interactions. We investigate strict social hierarchies, tiered leadership structures and global market places.
Original languageEnglish
Pages (from-to)375-399
Number of pages25
JournalJournal of Economic Behavior & Organization
Volume119
DOIs
Publication statusPublished - Nov 2015

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Keywords

  • Network economies
  • Bilateral and multilateral interaction
  • Stable outcomes
  • Institutional stability

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