Inefficiencies in a model of spatial networks formation with positive externalities

Abstract

In this paper, we make an exploratory use of computational techniques (genetic algorithms and Monte Carlo simulations) to compute efficient and emergent networks in a spatialized version of the connections model of Jackson and Wolinski (Jackson, M.O., Wolinski, A., 1996. A strategic model of social and economic networks. Journal of Economic Theory 71, 44–74). This approach allows us to observe and discuss inefficiencies that arise in a strategic network formation context with imperfectly link-mediated positive externalities to connections and spatial link costs. Our results highlight that, depending on the strength of the externalities, emergent and efficient networks may share several structural properties. Nevertheless, emergent networks are insufficiently dense and should be more structured around central agents.