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Coordination in Evolving Networks with Endogenous Decay

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  • Francesco Feri

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  • Miguel A.Mel?ndez-Jim?nez
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    Abstract

    This paper studies an evolutionary model of network formation with endogenous decay, in which agents benefit both from direct and indirect connections. In addition to forming (costly) links, agents choose actions for a coordination game that determines the level of decay of each link. We address the issues of coordination (long-run equilibrium selection) and network formation by means of stochastic stability techniques. We find that both the link cost and the trade-off between efficiency and risk-dominance play a crucial role in the long-run behavior of the system.

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    File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2009-19.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2009-19.

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    Length: 42
    Date of creation: Jul 2009
    Date of revision:
    Handle: RePEc:inn:wpaper:2009-19

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    Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
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    Related research

    Keywords: Coordination; Networks; Risk dominance; stochastic stability;

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    References

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    1. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
    2. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, Econometric Society, vol. 61(1), pages 29-56, January.
    3. Sanjeev Goyal & Fernando Vega-Redondo, 2003. "Network Formation and Social Coordination," Working Papers, Queen Mary, University of London, School of Economics and Finance 481, Queen Mary, University of London, School of Economics and Finance.
    4. Bloch, Francis & Dutta, Bhaskar, 2005. "Communication Networks with Endogenous Link Strength," The Warwick Economics Research Paper Series (TWERPS) 723, University of Warwick, Department of Economics.
    5. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Dieckmann, Tone, 1999. "The evolution of conventions with mobile players," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 38(1), pages 93-111, January.
    7. Fernando Vega Redondo & Ventakamaran Bhaskar, 1996. "Migration and the evolution of conventions," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 1996-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Matthew O. Jackson & Alison Watts, 2000. "On the Formation of Interaction Networks in Social Coordination Games," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0778, Econometric Society.
    9. Carlsson, H. & Van Dame, E., 1991. "Equilibrium Selection in Stag Hunt Games," Papers, Tilburg - Center for Economic Research 9170, Tilburg - Center for Economic Research.
    10. Feri, Francesco, 2007. "Stochastic stability in networks with decay," Journal of Economic Theory, Elsevier, Elsevier, vol. 135(1), pages 442-457, July.
    11. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 1047-71, September.
    12. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, Elsevier, vol. 34(2), pages 331-341, February.
    13. Deroian, F., 2009. "Endogenous link strength in directed communication networks," Mathematical Social Sciences, Elsevier, Elsevier, vol. 57(1), pages 110-116, January.
    14. Hojman, Daniel A. & Szeidl, Adam, 2006. "Endogenous networks, social games, and evolution," Games and Economic Behavior, Elsevier, Elsevier, vol. 55(1), pages 112-130, April.
    15. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, Econometric Society, vol. 61(1), pages 57-84, January.
    16. Francesco Feri, 2007. "Network Formation With Endogenous Decay," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2007-14, Faculty of Economics and Statistics, University of Innsbruck.
    17. George J. Mailath & Larry Samuelson & Avner Shaked, 1997. "Endogenous Interactions," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences endo-one, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    18. Hojman, Daniel & Szeidl, Adam, 2006. "Core and Periphery in Endogenous Networks," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp06-022, Harvard University, John F. Kennedy School of Government.
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    Cited by:
    1. Harmsen - van Hout, Marjolein J.W. & Herings, P. Jean-Jacques & Dellaert, Benedict G.C., 2013. "Communication network formation with link specificity and value transferability," European Journal of Operational Research, Elsevier, Elsevier, vol. 229(1), pages 199-211.

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