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Subscription mechanisms for network formation

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Author Info
MUTUSWAMI, Suresh
WINTER, Eyal

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Abstract

We analyze a model of network formation where the costs of forming links are publicly known but an individual's benefits are not known to the social planner. The objective is to design a mechanism which not only ensures that an efficient network always forms in equilibrium but also ensures that the resulting net payoffs to the agents are equitable. We propose two mechanisms towards this end; in the first, agents announce sequentially the set of players with whom they wish to form links and a cost contribution. We show that all subgame perfect equilibria of this game result in the formation of an efficient network but the resulting net payoffs are asymmetric. The second mechanism corrects this asymmetry through a two-stage variant of the first mechanism. We also discuss an extension of the basic model to cover the case of directed graphs and give conditions under which the proposed mechanisms are immune to deviations by coalitions.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000020.

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Date of creation: 01 Mar 2000
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Handle: RePEc:cor:louvco:2000020

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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.:
  1. Sergio Currarini & Massimo Morelli, 2000. "Network Formation with Sequential Demands," Royal Holloway, University of London: Discussion Papers in Economics 99/2, Department of Economics, Royal Holloway University of London, revised Feb 2000. [Downloadable!]
  2. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January. [Downloadable!] (restricted)
  3. Slikker, M. & Nouweland, A. van den, 1999. "Network formation models with costs for establishing links," Research Memorandum 771, Tilburg University, Faculty of Economics and Business Administration. [Downloadable!]
  4. Bag, Parimal Kanti & Winter, Eyal, 1999. "Simple Subscription Mechanisms for Excludable Public Goods," Journal of Economic Theory, Elsevier, vol. 87(1), pages 72-94, July. [Downloadable!] (restricted)
  5. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October. [Downloadable!] (restricted)
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  6. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  7. Seidmann, Daniel J & Winter, Eyal, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Blackwell Publishing, vol. 65(4), pages 793-815, October. [Downloadable!] (restricted)
  8. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January. [Downloadable!] (restricted)
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  9. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Antoni Calvo-Armengol & Matthew O. Jackson, 2002. "Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality," Microeconomics 0211007, EconWPA. [Downloadable!]
    Other versions:
  2. Matthew O. Jackson, 2003. "Allocation Rules for Network Games," Working Papers 2003.51, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  3. Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer, vol. 34(3), pages 305-318, October. [Downloadable!] (restricted)
  4. Ricardo Nieva, 2008. "Networks with Group Counterproposals," Working Papers 2008.61, Fondazione Eni Enrico Mattei. [Downloadable!]
  5. Francis Bloch & Matt Jackson, 2004. "The Formation of Networks with Side Payments," Econometric Society 2004 North American Summer Meetings 198, Econometric Society. [Downloadable!]
  6. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA. [Downloadable!]
    Other versions:
  7. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA. [Downloadable!]
  8. Suresh Mutuswami & David Pérez-Castrillo & David Wettstein, 2001. "Bidding for the Surplus: Realizing Efficient Outcomes in General Economic Environments," UFAE and IAE Working Papers 479.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  9. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA. [Downloadable!]
    Other versions:
  10. Filippo VERGARA CAFFARELLI, 2004. "Non-Cooperative Network Formation with Network Maintenance Costs," Economics Working Papers ECO2004/18, European University Institute. [Downloadable!]
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