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Trade Networks and the Strength of Strong Ties

ISBN: 978-1-83867-576-9, eISBN: 978-1-83867-575-2

Publication date: 19 October 2020

Abstract

Evidence suggests that, in the presence of imperfect market institutions, individuals devote resources to the establishment of reliable connections to attenuate the frictions that reduce trading and insurance opportunities. In this chapter, the author surveys the relevant literature on strategic formation of networks and use it to study this particular economic situation. A simple model is built to show that the investment in strong ties often, though not always, produces stable configurations that manage to improve upon the imperfections of market institutions.

Keywords

C70
D20

Acknowledgements

Acknowledgments

The first version of this chapter was written in 2002 while I was in graduate school at Princeton University and first learned about the network formation literature. I thank José Scheinkman for stimulating my curiosity on the topic and Christian Julliard, Gabor Virag, and Wei Xiong for invaluable comments on an earlier version of this chapter.

Citation

Paula, Á.d. (2020), "Trade Networks and the Strength of Strong Ties", de Paula, Á., Tamer, E. and Voia, M.-C. (Ed.) The Econometrics of Networks (Advances in Econometrics, Vol. 42), Emerald Publishing Limited, Leeds, pp. 83-110. https://doi.org/10.1108/S0731-905320200000042009

Publisher

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Emerald Publishing Limited