Francesco Squintani (University of Warwick) on "Networks and Ideology"

the theory of network economics to introduce the possibility that agents are

ideologically differentiated. Celebrated studies by Jackson and Wolinsky

(1996) and Bala and Goyal (2000) identified the star as the optimal network

structure, and established its stability properties, in a wide class of

contexts. They used as a main motivation the transmission of non-rival

information, along a network of costly links, and with exponential signal

decay across links. We reconsider information transmission in networks, by

introducing ideological differences in the players' preferences, with the

aim to study applications such as, for example, the formation of political

networks among elected office holders of different jurisdictions. Under

parametric restrictions analogous to the ones exploited by the above

studies, and in contrast with their results, we find the optimal network to

be the line in which players are ordered according to their ideologies.

Further, we identify conditions under which this ordered line arises

endogenously as the stable network through unilateral or bilateral link

sponsorship. Our results suggest efficiency and stability rationales for why

political networks of ideologically differentiated peers would only display

links between like-minded agents. In contrast, hierarchical networks like

the star would be more likely in organizations such as commercial companies,

or the army, in which agents preferences are more closely aligned.