I was asked recently what I thought about research in Social Networks (SN). The correct response to a question of this variety when asked in public before an audience that contains scholars thinking about this subject is to say something noncommital or perhaps imitate Herman Cain on Libya. I did neither. I said what was on my mind and upon reflection, I realize it was not the best answer. With the benefit of time, I think have a better answer (and no, I’m not about to mimic Romney either!).
There are, I think, 3 strands in the literature dubbed SN. The first is the use of information contained in the web of relationships an individual maintains to make inferences about that individual. In one sense this is a standard statistical (or machine learning) exercise but with the wrinkle that the potentially relevant independent variables are associated with properties of the network within which the individual is embedded. The second strand is about how infection or ideas spread through a network. This is a subject that is at least 20 years old (see for example the 1988 survey paper by Hedetniemi, Hedetniemi and Liestman). The new wrinkle here has been the desire to study diffusion in networks that resemble what is observed rather than networks in general. Thus, I would also lump into this strand of the literature the work done to document and describe observed networks (eg the power law stuff).
The third strand is driven by the idea that one’s place in the network determines one’s influence, power or wealth. It is this strand of the literature that I am skeptical about. Note, skeptical not opposed to. First, I accept that `who you know’ matters. But if this is the extent of the insight such models yield, it is thin gruel. Now, there are models that seek to show how the structure of the network influences the distribution of wealth, say, These usually involve an exogenously given static network. However, one would suspect that such networks are really dynamic and the products of strategic choices of the agents. Thus, these models are still too distant from reality to be compelling. Suggestive, perhaps, but not compelling.
4 comments
November 17, 2011 at 3:50 pm
acela
Do you see endogenous/strategic network formation as falling into the first strand? Or maybe just still too preliminary to be worth thinking through?
November 20, 2011 at 1:28 pm
rvohra
I agree, it should also be placed in the first strand.
November 22, 2011 at 12:52 pm
Babak
Can you suggest the most important papers from the 3rd strand?
December 7, 2011 at 3:01 pm
rvohra
Dear Babak, apologies for the delay in replying. I’d hesitate to pick out a set of papers as the most important as it would suggest that I had read everything on the subject. Instead let me point to a paper or two that goes in the a direction I’m sympathetic to. One is by Ambrus, Mobius & Szeidl (Consumption Risk Sharing). This paper attempts to argue that the network of relationships between individuals will predict something about how risk is shared. Note, I said attempt because I’m not entirely persuaded by the model. As a technical aside one should look at Bassamboo et al (Optimal flexibility configurations in Newsvendor Networks) and Chou et al (Process Flexibility Revisited-The Graph Expander and its applications). I picked this paper because its goal is to show how the underlying social network should influence the flow of capital. I believe that on Markus Mobius’ page you should find an empirical counterpart to the paper.
On the theoretical side I would point to a paper by Manea (AER 2011) on bargaining in networks and the closely related paper by Thanh Ngyuen (note Thanh is a postdoc at Northwestern, so I may be biased). Here the network limits who can bargain with whom. In this sense the network captures possible barriers to trades. If one accepts as plausible the model of bargaining used in these papers, then they provide sharp predictions of how position in network influences wealth. I would contrast this with Kakade, Kearn and Ortiz (Graphical Economics) which looks at general equilibrium on networks. In that paper there is no role for middlemen and trade is perfectly competitive subject to the network constraints. Ngyuen’s paper, for example, permits middlemen and thus one can see how position in the network affects a middleman’s payoff. By the way, one of the earliest papers on these questions that is sometimes forgotten is Kalai, Postlewaite and Roberts in JET, 1978 (barriers to trade etc). They came to the `surprising’ conclusion that removing a link between buyer and seller could make the middleman worse off. But this was really a product of the fact that they restricted trade to take place in the core. A middleman’s power, however, comes from the threat of imposing an inefficient outcome.