Stable Signed Networks

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Abstract

While standard social networks suppress negative ties, signed networks capture them by coding relations as +1 if positive, −1 if negative, and 0 if neutral. The economics literature on social networks has always had a particular focus on strategic network formation, but signed networks have been largely ignored. Hence, there is the fundamental question: How do signed networks form among strategic agents? We address this question by studying how agents strategically form and dissolve positive and negative ties. In our framework agents change their ties, while anticipating the costs and benefits the network means. We extend the notion of pairwise stability to signed networks requiring that deviations to add a positive link or to delete a negative link must be bilateral, while deviations to delete a positive link or to establish a negative link can be unilateral. By analytical derivations and by computational methods, we characterize which networks are stable, and hence likely to emerge, and how they differ from the efficient, i.e., welfare-maximizing, networks. This enables us to show how incentives shape the evolution of signed networks.

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