This paper studies mutual consent social networks in which individuals imperfectly monitor others' network ties and have incomplete information about the benefits of network participation. I introduce the Conjectural Pairwise Stability concept, which generalizes Jackson and Wolinsky's (1996) Pairwise Stability concept to allow for limited observation, and apply it to a specific mutual consent network formation game. While limited observation generally leads to the existence of less efficient stable networks, I find that it can also lead to the existence of efficient stable networks. Moreover, stability restrictions considered in previous work lose their refining power as observation becomes more limited.
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Dutta, Bhaskar & Mutuswami, Suresh, 1996.
"Stable Networks,"
Working Papers
971, California Institute of Technology, Division of the Humanities and Social Sciences.
[Downloadable!]
Jackson, Matthew O. & Rogers, Brian W., 2005.
"The economics of small worlds,"
Working Papers
1214, California Institute of Technology, Division of the Humanities and Social Sciences.
[Downloadable!]
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