DP8052 From Assortative to Dissortative Networks: The Role of Capacity Constraints

Author(s): Michael König, Claudio J. Tessone, Yves Zenou
Publication Date: October 2010
Keyword(s): Bonacich centrality, nested split graphs, network formation, social interactions
JEL(s): A14, C63, D85
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8052

We consider a dynamic model of network formation where agents form and sever links based on the centrality of their potential partners. We show that the existence of capacity constrains in the amount of links an agent can maintain introduces a transition from dissortative to assortative networks. This effect can shed light on the distinction between technological and social networks as it gives a simple mechanism explaining how and why this transition occurs.