Economic Theory Seminar Series: Networks and Ideology

Francesco Squintani | University of Warwick

Network theory is used in Economics and Business Studies to further the understanding of firms and organizations. It is studied how different individuals or units should be linked so that they communicate and cooperate optimally, and which structures form endogenously.  Much of this research has focused on the technological, or agency features of the optimal network design problem. Optimal networks are usually centralized and hierarchical (stars, or multi-layer stars). A distinct feature of political agents is ideological differentiation.

               How does bringing this feature to organization design change the picture? As an example, let me take a group of elected policy makers in different jurisdictions. They may face similar policy challenges, and would gain from the experience gathered by their peers. The outcome of these policy experiments can be hardly falsified, but can be concealed in the abundance of bureaucracy documents. When facing a policy issue, a policy maker consults her network of political allies to gain access to their valuable information. These political connections are costly to form and maintain, and information may decay (with small probability) even across established links.

               I ask: What is the shape of the optimal peer network? What networks of peers form endogenously and are stable? When link cost is `intermediate' and politicians are all ideologically distant, the optimal network (and unique strongly pairwise stable network) is the line with politicians ordered according to ideology. This nicely contrasts fundamental results in network theory (e.g., Jackson and Wolinsky 1996, Bala and Goyal 1999). In the context I study, they find that if politicians are not ideologically motivated, then the optimal network is the star, unless the decay prob. is zero. While the star is a highly centralized organization structure, the line can be thought as very decentralized/horizontal.

               If the link cost is `intermediate,' and politicians are partitioned in ideologically-close clusters ideologically far from each other, then the clusters optimally organize as stars, each center linking with the centers of the ideologically adjacent clusters. This gives rise to familiar organization structures in politics: factions of like-minded politicians reporting to a leader (center of the star), with faction leaders communicating with each other along ideology lines. Surprisingly, there are also ideology distributions for which the optimal network is entirely different from these familiar structures.

               In general, networks of political peers are less centralized and hierarchical than the structures of organizations with a single common goal (e.g., the army), because politicians optimally form links with like-minded peers.