Networks and Favor Exchange Norms under Stochastic Costs
AbstractWe develop a model of favor exchange in a network setting where the cost of performing favors is stochastic. For any given favor exchange norm, we allow for the endogenous determination of the network structure via a link deletion game. We characterize the set of stable as well as equilibrium systems and show that these sets are identical. The most efficient network topology and favor exchange convention are generically shown to be not supported as equilibrium of the link deletion game. Our model provides a useful framework for understanding the topology of favor exchange networks. While the model exhibits positive externalities, its properties differ from the "information transmission" model Ã la Jackson and Wolinsky, as evidenced by the emergence of regular networks as opposed to star networks as stable and efficient network structures.
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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2013-04.
Length: 28 pages
Date of creation: Apr 2013
Date of revision:
Find related papers by JEL classification:
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
- NEP-GTH-2013-04-20 (Game Theory)
- NEP-MIC-2013-04-20 (Microeconomics)
- NEP-NET-2013-04-20 (Network Economics)
- NEP-ORE-2013-04-20 (Operations Research)
- NEP-SOC-2013-04-20 (Social Norms & Social Capital)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Antoni Calvó-Armengol & Rahmi Ilkiliç, 2004.
"Pairwise-Stability and Nash Equilibria in Network Formation,"
182, Barcelona Graduate School of Economics.
- Antoni Calvó-Armengol & Rahmi İlkılıç, 2009. "Pairwise-stability and Nash equilibria in network formation," International Journal of Game Theory, Springer, vol. 38(1), pages 51-79, March.
- Antoni Calvó-Armengol & Rahmi Ilkiliç, 2005. "Pairwise-Stability and Nash Equilibria in Network Formation," Working Papers 2005.34, Fondazione Eni Enrico Mattei.
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