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The Role of Trust in Costly Network Formation

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  • Sudipta Sarangi
  • Robert P. Gilles

Abstract

We investigate game theoretic models of entwork formation that are based on individual actions only. Our approach is grounded in three simple and realistic principles. (1) Link formation should be a binary process of consent. (2) Link formation should be costly. (3) The class of network payoff functions should be as general as possible. We provide charecterizations of stable networks under the hypothesis of mutual consent for the case of two-sided and one-sided link formation costs. Furthermore, we introduce a new eqilibrium concept based on a limited, realistic form of farsightedness or (myopic) ''trust'' in network formation. We provide comparisons of the resulting networks with networks satisfying well known stability concepts developed in the literature

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 483.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:483

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Keywords: Social networks; individual stability; pairwsie stability; trust;

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References

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  1. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Michael McBride, 2003. "Position-specific information in social networks: Are you connected?," Levine's Working Paper Archive 506439000000000265, David K. Levine.
  3. Sudipta Sarangi & H. Haller, . "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
  4. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. 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.
  6. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer, vol. 27(2), pages 245-256.
  7. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA.
  8. Ui, Takashi, 2000. "A Shapley Value Representation of Potential Games," Games and Economic Behavior, Elsevier, vol. 31(1), pages 121-135, April.
  9. Frank H. Page Jr. & Myrna H. Wooders & Samir Kamat, 2002. "Networks and Farsighted Stability," Computing in Economics and Finance 2002 370, Society for Computational Economics.
  10. Matthew O. Jackson, 2003. "Allocation Rules for Network Games," Working Papers 2003.51, Fondazione Eni Enrico Mattei.
  11. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  12. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  13. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
  14. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
  15. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  16. Hart, Sergiu & Mas-Colell, Andreu, 1989. "Potential, Value, and Consistency," Econometrica, Econometric Society, vol. 57(3), pages 589-614, May.
  17. Slikker, M., 2000. "Decision Making and Cooperation Restrictions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-82556, Tilburg University.
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Cited by:
  1. Slikker, Marco & Gilles, Robert P. & Norde, Henk & Tijs, Stef, 2005. "Directed networks, allocation properties and hierarchy formation," Mathematical Social Sciences, Elsevier, vol. 49(1), pages 55-80, January.
  2. Sudipta Sarangi & H. Haller, . "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
  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.
  4. Gönül Dogan & M.A.L.M. van Assen & Arnout van de Rijt & Vincent Buskens, 2007. "The Stability of Exchange Networks," Working Papers 2007.66, Fondazione Eni Enrico Mattei.
  5. Gilles, R.P. & Chakrabarti, S. & Sarangi, S. & Badasyan, N., 2004. "The Role of Middlemen inEfficient and Strongly Pairwise Stable Networks," Discussion Paper 2004-64, Tilburg University, Center for Economic Research.
  6. Daniel E. May, 2008. "Is Bilateralism Consistent with Global Free Trade?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 137-152, August.
  7. Borkotokey, Surajit & Sarangi, Sudipta, 2011. "Allocation rules for fixed and flexible networks: the role of players and their links," MPRA Paper 38340, University Library of Munich, Germany.
  8. Marco A. Marini, 2007. "An Overview of Coalitions and Networks Formation Models for Economic Applications," Working Papers 0707, CREI Università degli Studi Roma Tre, revised 2007.
  9. Marco Marini, 2007. "An Overview of Coalition & Network Formation Models for Economic Applications," Working Papers 0712, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2007.
  10. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.

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