Dynamics of Networks if Everyone Strives for Structural Holes

When entrepreneurs enter “structural holes” in information networks, they can make a profit by exploiting the access and control benefits that these provide. That is Ronald Burt’s 13-year-old argument. Ever since, evidence for the suggested advantages from the occupancy of strategic network positions has steadily accumulated. What has not been shown, however, is whether those who strive for such structural advantages can actually obtain and maintain them. We ask what would happen if people followed Burt’s advice and indeed entered structural holes by manipulating their local networks in pursuit of access and control benefits. Using an explicit model of network entrepreneurship, we characterize the networks that are obtained after beneficial links have been added and costly ones removed, and we assess the returns that network entrepreneurs earn on their social capital investments in these networks. An important class of stable networks turns out to be “balanced complete bipartite networks.” In these networks, benefits are evenly distributed, so no one has a structural advantage. This result sharply contrasts with Burt’s typical example of what a network may look like after entrepreneurial activity, in which the majority of access and control benefits accrue to only one individual.