We examine a simple economic model of network formation where agents benefit from indirect relationships. We show that small-world features - -- short path lengths between nodes together with highly clustered link structures --- necessarily emerge for a wide set of parameters.

We present a model of network formation where entering nodes find other nodes to link to both completely at random and through search of the neighborhoods of these randomly met nodes. We show that this model exhibits the full spectrum of features that have been found to characterize large...