On Peer Networks and Group Formation

by Ballester Pla, Coralio

Abstract (Summary)
The aim of this thesis work is to contribute to the analysis of the interaction of agents in social networks and groups. In the chapter "NP-completeness in Hedonic Games", we identify some significant limitations in standard models of cooperation in games: It is often impossible to achieve a stable organization of a society in a reasonable amount of time. The main implications of these results are the following. First, from a positive point of view, societies are bound to evolve permanently, rather than reach a steady state configuration rapidly. Second, from a normative perspective, a planner should take into account practical time limitations in order to implement a stable social order. In order to obtain our results, we use the notion of NP-completeness, a well-established model of time complexity in Computer Science. In particular, we concentrate on group stability and individual stability in hedonic games. Hedonic games are a simple class of cooperative games in which each individual's utility is entirely determined by her group. Our complexity results, phrased in terms of NP-completeness, cover a wide spectrum of preference domains, including strict preferences, indifference in preferences or undemanding preferences over sizes of groups. They also hold if we restrict the maximum size of groups to be very small (two or three players). The last two chapters deal with the interaction of agents in the social setting. It focuses on games played by agents who interact among them. The actions of each player generate consequences that spread to all other players throughout a complex pattern of bilateral influences. In "Who is Who in Networks. Wanted: The Key Player" (joint with Antoni Calvó-Armengol and Yves Zenou), we analyze a model peer effects where agents interact in a game of bilateral influences. Finite population non-cooperative games with linear-quadratic utilities, where each player decides how much action she exerts, can be interpreted as a network game with local payoff complementarities, together with a globally uniform payoff substitutability component and an own-concavity effect. For these games, the Nash equilibrium action of each player is proportional to her Bonacich centrality in the network of local complementarities, thus establishing a bridge with the sociology literature on social networks. This Bonacich-Nash linkage implies that aggregate equilibrium increases with network size and density. We then analyze a policy that consists in targeting the key player, that is, the player who, once removed, leads to the optimal change in aggregate activity. We provide a geometric characterization of the key player identified with an inter-centrality measure, which takes into account both a player's centrality and her contribution to the centrality of the others. Finally, in the last chapter, "Optimal Targets in Peer Networks" (joint with Antoni Calvó-Armengol and Yves Zenou), we analyze the previous model in depth and study the properties and the applicability of network design policies. In particular, the key group is the optimal choice for a planner who wishes to maximally reduce aggregate activity. We show that this problem is computationally hard and that a simple greedy algorithm used for maximizing submodular set functions can be used to find an approximation. We also endogeneize the participation in the game and describe some of the properties of the key group. The use of greedy heuristics can be extended to other related problems, like the removal or addition of new links in the network.
This document abstract is also available in Spanish.
Bibliographical Information:

Advisor:Vilà, Xavier; Calvó-Armengol, Antoni

School:Universitat Autónoma de Barcelona

School Location:Spain

Source Type:Master's Thesis

Keywords:412 departament d economia i historia economica


Date of Publication:06/23/2005

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