We propose a random network model incorporating heterogeneity of agents and a continuous notion of homophily. Unlike … the vast majority of the corresponding economic literature, we capture homophily in terms of similarity rather than … equality of agents. We show that if links between similar agents are indeed more likely, our homophilous random network model …

We propose a random network model incorporating heterogeneity of agents and a continuous notion of homophily. Unlike … the vast majority of the corresponding economic literature, we capture homophily in terms of similarity rather than … characteristics. A homophily parameter directly determines the strength of this effect. As a main result, we show that for any …

that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove … maximizing the aggregate profit, are still the all-encompassing star and the complete network, with the sole and rare exception … of a highly particular case where there is a draw between the allencompassing star, the complete network and a whole …

partition the network into smaller subgames whose equilibrium sets may be more feasible to compute. We provide bounds on the … interactions. We also provide algorithms for computing pairwise stable and directed Nash stable networks in network formation games. …