Strategic Networks: Information Dissemination and Link Formation Among Self-Interested Agents

This paper presents the first study of the endogenous formation of networks by strategic, self-interested agents who benefit from producing and disseminating information. This work departs from previous works on network formation (especially in the economics literature) which assume that agents benefit only by acquiring information produced by other agents. The strategic production and dissemination of information have striking consequences. We show first that the network structure that emerges (in equilibrium) typically displays a core-periphery structure, with the few agents at the core playing the role of connectors, creating and maintaining links to the agents at the periphery. We then determine conditions under which the networks that emerge are minimally connected and have short network diameters (properties that are important for efficiency). Finally, we show that the number of agents who produce information and the total amount of information produced in the network grow at the same rate as the agent population; this is in stark contrast to the "law of the few" that had been established in previous works which do not consider information dissemination.