Information Acquisition and Exchange in Social Networks

Authors


  • We are grateful to the editor, Martin Cripps and three anonymous referees for comments that have significantly improved the article. We also thank Nicolas Carayol, Syngjoo Choi, Matthew Elliott, Edoardo Gallo, Ben Golub, Friederike Mengel, Francesco Nava, Romans Pancs, Pauline Rutsaert, Vessela Daskalova and seminar participants at ASSET 2012, Stockholm, ESA 2012, Cologne, Bordeaux, Cambridge, Rotterdam and Cape Town for helpful comments. The article was circulated as a working paper in 2012 with the title ‘Individual search and social communication’.

Abstract

A central feature of social networks is information sharing. The Internet and related computing technologies shape the relative costs of private information acquisition and forming links with others. This article presents an experiment on the effects of changing costs. We find that a decline in relative costs of linking makes private investments more dispersed and gives rise to denser social networks. Aggregate investment falls but individuals’ access to investment remains stable, due to increased networking. The overall effect is an increase in individual utility and aggregate welfare.

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