Unpublished,
Structural Holes in Social Networks
(2004)working paper.
Abstract
We consider a setting where every pair of players that interact (e.g. exchange goods or information) create a surplus. An interaction can take place only if the players involved have a connection. If the connection is direct the two players split the surplus equally while if it is indirect then intermediate players also get a share of the surplus. Thus individuals form link with others to create surplus, to gain intermediation rents and ti circumvent others who are trying to becom inermediary. Our principal result is that stratgic link formation in such a setting leads to the star network. In a star a single agent acts as an intermediary for all transactions and there is significant payoff inequality across ex-ante identical players.
