Abstract

The study of networks is a dynamic and exciting field of research in contemporary economics. This chapter traces its origins and illustrates its reach. Social and economic life occurs at the intersection of the global and the local. Game theory is well suited for the study of behavior in small exclusive groups; general equilibrium theory helps to understand large anonymous systems. Networks offer a language that spans the large and the details of the small within a common framework, filling an important gap in the tool kit of economists. The key methodological innovation of early research was the introduction of graph theory alongside purposeful agents, offering two overarching themes: first, the study of how network architecture shapes human behavior, and second, the study of how purposeful individuals form links thereby creating networks. The chapter discusses a number of applications to illustrate the scope of these two themes.