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17 networks lecture 1 introduction importance of

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Unformatted text preview: at they obey the same logic? Should we have a single theory to explain both? Should we use the same mathematical tools to analyze both? 17 Networks: Lecture 1 Introduction Importance of Networks in Economics and Sociology? Sociology largely about group interactions, thus network structure naturally important. Notions such as social capital, power, or leadership may be best understood by studying the network of interactions within groups. Sociology largely descriptive and nonmathematical. Can the study of networks bring more analytic power to sociology? For example, what is “social power” related to? What kind of relationships and linkages does a leader need to have in a community? Or about dynamics of groups: is the karate club depicted above likely to splinter into two groups? 18 Networks: Lecture 1 Introduction Importance of Networks in Economics and Sociology? (continued) Economics about “allocation of scarce resources”— broadly construed: “trades,” cooperation vs. competition, information exchange and aggregation, technology adoption, etc. Much of this allocation takes place in networked situations. But much of economics studies either one of two extremes: (1) markets, where all interactions are anonymous (implicitly anybody can trade with anybody else); (2) games among few players— with the identities of the players predetermined. Example: competitive equilibrium at the one end, and bargaining and auctions at the other. Can we develop new insights by systematically analyzing (and economically representing) the network of relations underlying “trades”? 19 Networks: Lecture 1 Introduction Examples of “Network Effects” How do people find jobs? Myers and Shultz (1951) The Dynamics of a Labor Market and Rees and Shultz (1970) Workers in an Urban Labor Market documented that most workers find (have found) their jobs through “a social contact”. Granovetter (1973) “The Strength of Weak Ties”: most people find jobs through acquaintances not close friends. Is this a puzzle? Yes and no. No because people have many more acquaintances than friends, but also because of strong triadic closure; if 1 and 2 are close friends, and 2 and 3 are close friends, then 1 and 3 are very likely to know each other. Therefore, you are more likely to get referrals to a manager whom you don’t know through an acquaintance than a close friend → importance of weak ties. Weak ties may also be very important in understanding “social capital”. 20 Networks: Lecture 1 Introduction Examples of “Network Effects” (continued) How do people start and run their businesses? In many developing economies (but also even in societies with very strong institutions), networks of “acquaintances and contacts” shape business behavior. Munshi (2009) “Strength in Numbers: A Network-Based Solution to Occupational Traps”: Indian diamond industry, which makes up about 14% of total merchandise exports, is dominated by a few small subcasts, the Marwa...
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