The Strength of Local Structures in Decentralized Network Formation

Abstract

I study dynamic network formation games in which agents meet stochastically and form links based on their valuation of the network. I show that these games can be represented in terms of the values agents assign to network sub-structures. Particularly, this characterizes potential games as those where all participants in a structure value it equally. When valuations are restricted to a finite set of repeated sub-structures, or motifs, the model exhibits phase transitions: small changes in motif values cause discontinuous shifts in network density.