Movers and Shakers

Most projects, in most walks of life, require the participation of multiple parties. While it is difficult to unite people in a common endeavor, some people, whom we call “movers and shakers,” seem able to do it. The paper specifically examines moving and shaking of an investment project. We analyze a model with a large number of ex ante identical agents. Agents form social connections, bid to buy ownership and cashflow rights to an asset that is necessary for undertaking a project, and acquire private iid signals of the project’s quality, which they can communicate, at a cost, to those with whom they are linked. Finally, agents choose whether to invest in the project whose returns are a function both of its underlying quality and aggregate investment. We characterize the equilibrium of this game, including the endogenously formed network structure, information flows, and payoffs. We show that a single agent emerges as most connected; these connections confer the ability to increase aggregate investment (i.e., move and shake the project); he consequently earns a rent. In extensions, we move away from the assumption of ex ante identical agents to highlight various forces that lead one agent or another to become a mover and shaker. Finally, we explore various applications, including: IPOs, funds management, and insider trading. ∗Akerlof: University of Warwick. email: [email protected]. Holden: University of New South Wales. email: [email protected].