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Network Formation And Coordination: Bargaining The Division Of Link Costs

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Author Info

  • Miguel A. Meléndez-Jiménez

    (Universidad de Alicante)

Abstract

This paper presents a model of network formation with costly links. We endogenize the amount of cost born by each player involved in a bilateral link by considering that these shares result from bargaining. We analyze this feature in a context of coordination games. We show that, if the cost of the link is not too high, the complete network arises and players coordinate on the same action. If this cost is higher than the risk-dominance premium the efficient action is selected; instead, if it is lower, the risk-dominant action prevails.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2002-27.pdf
File Function: Fisrt version / Primera version, 2002
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2002-27.

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Length: 44 pages
Date of creation: Dec 2002
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2002-27

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Related research

Keywords: Coordination; Nash bargaining solution; Markov process;

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References

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  1. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  2. Sanjeev Goyal & Fernando Vega-Redondo, 2000. "Learning, Network Formation and Coordination," Tinbergen Institute Discussion Papers 00-093/1, Tinbergen Institute.
  3. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  4. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  5. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
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Cited by:
  1. Andrea Galeotti & Miguel Mel�ndez, 2004. "Exploitation and Cooperation in Networks," Tinbergen Institute Discussion Papers 04-076/1, Tinbergen Institute.

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