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Characterization of efficient networks in a generalized connections model with endogenous link strength

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  • Olaizola Ortega, María Norma
  • Valenciano Llovera, Federico

Abstract

We consider a natural generalization of Jackson and Wolinsky s (1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly nonempty efficient networks, in the sense of maximizing the aggregate proffit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.

Suggested Citation

  • Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2019. "Characterization of efficient networks in a generalized connections model with endogenous link strength," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:34463
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    Cited by:

    1. Olaizola, By Norma & Valenciano, Federico, 2021. "Efficiency and stability in the connections model with heterogeneous nodes," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 490-503.
    2. Olaizola, Norma & Valenciano, Federico, 2020. "A connections model with decreasing returns link-formation technology," MPRA Paper 107585, University Library of Munich, Germany.
    3. Norma Olaizola & Federico Valenciano, 2023. "A connections model with decreasing returns link-formation technology," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 14(1), pages 31-61, March.

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    More about this item

    Keywords

    network; formation; connecions; model; nested; split; graph; efficiency;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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