Network Formation And Coordination: Bargaining The Division Of Link Costs
AbstractThis 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2002-27.
Length: 44 pages
Date of creation: Dec 2002
Date of revision:
Publication status: Published by Ivie
Coordination; Nash bargaining solution; Markov process;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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