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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

Suggested Citation

  • Sudipta Sarangi & Robert P. Gilles, 2004. "The Role of Trust in Costly Network Formation," Econometric Society 2004 North American Summer Meetings 483, Econometric Society.
    • Handle: RePEc:ecm:nasm04:483
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    Cited by:

    1. Daniel E. May, 2015. "Inefficient Stable International Trade Networks," Studies in Microeconomics, , vol. 3(1), pages 13-34, June.
    2. Subhadip Chakrabarti & Supanit Tangsangasaksri, 2014. "Network Topology, Higher Orders Of Stability And Efficiency," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 1-21.
    3. 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.
    4. Dooan, Gonul & van Assen, M.A.L.M. & van de Rijt, Arnout & Buskens, Vincent, 2007. "The Stability of Exchange Networks," Coalition Theory Network Working Papers 9098, Fondazione Eni Enrico Mattei (FEEM).
    5. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
    6. 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.
    7. 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.
    8. 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.
    9. Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(3), pages 305-318, October.
    10. Hans Haller & Sudipta Sarangi, 2003. "Nash Networks with Heterogeneous Agents," Discussion Papers of DIW Berlin 337, DIW Berlin, German Institute for Economic Research.
    11. Daniel E. May, 2008. "Is Bilateralism Consistent with Global Free Trade?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 137-152, August.
    12. May, Daniel & McCorriston, Steve, 2015. "Global Agreements in Agriculture: A Network Approach with Market Intermediaries," 2015 Conference, August 9-14, 2015, Milan, Italy 212451, International Association of Agricultural Economists.
    13. 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.

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    More about this item

    Keywords

    Social networks; individual stability; pairwsie stability; trust;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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