SMALL WORLD NETWORKS WITH SEGREGATIONPATTERNS AND BROKERS

Many social networks have the following properties: (i) a short average distancebetween any two individuals; (ii) a high clustering coe±cient; (iii) segregation pat-terns; the presence of (iv) brokers and (v) hubs. (i) and (ii) de¯ne a small worldnetwork. This paper develops a strategic network formation model where agents haveheterogeneous knowledge of the network: cognizant agents know the whole network,while ignorant ones are less knowledgeable. For a broad range of parameters, all pair-wise Nash (PN) networks have properties (i)-(iv). There are some PN networks withone hub. Cognizant agents have higher betweenness centrality: they are the brokerswho connect di®erent parts of the network. Ignorant agents cause the emergenceof segregation patterns. The results are robust to varying the number of cognizantagents and to increasing the knowledge level of ignorant ones. An application showsthe relevance of the results to assessing the welfare impact of an increase in networkknowledge due to, e.g., improved access to social networking tools....