Network Formation and Social Coordination
AbstractThis paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by unilaterally investing in costly pair-wise links. In this context, individual efforts to balance the costs and benefits of links are shown to lead to a unique equilibrium interaction architecture. The dynamics of network formation, however, has powerful effects on individual behavior: if costs of forming links are below a certain threshold then players coordinate on the risk-dominant action, while if costs are above this threshold then they coordinate on the efficient action. These findings are robust to a variety of modifications in the link formation process. For example, it may be posited that, in order for a link to materialize, the link proposal must be two-sided (i.e. put forward by both agents); or that, in case of a unilateral proposal, the link may be refused by the other party (if, say, the latter's net payoff is negative); or that a pair of agents can play the game even if connected only through indirect links.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 481.
Date of creation: Jan 2003
Date of revision:
Networks; Links; Coordination games; Equilibrium selection; Risk dominance; Efficiency;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D6 - Microeconomics - - Welfare Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-19 (All new papers)
- NEP-CDM-2003-01-19 (Collective Decision-Making)
- NEP-COM-2003-01-19 (Industrial Competition)
- NEP-CWA-2003-01-19 (Central & Western Asia)
- NEP-GTH-2003-01-19 (Game Theory)
- NEP-PUB-2003-01-19 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 1995.
"Link formation in cooperative situations,"
1995-35, Tilburg University, Center for Economic Research.
- Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 1998. "Link formation in cooperative situations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-77112, Tilburg University.
- Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 2003. "Link formation in cooperative situations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-121826, Tilburg University.
- Ellison, Glenn & Fudenberg, Drew, 1992.
"Rules of Thumb for Social Learning,"
IDEI Working Papers
17, Institut d'Économie Industrielle (IDEI), Toulouse.
- Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
- G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
- Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
- Jackson, Matthew O. & Watts, Alison, 2002.
"On the formation of interaction networks in social coordination games,"
Games and Economic Behavior,
Elsevier, vol. 41(2), pages 265-291, November.
- Matthew O. Jackson & Alison Watts, 2000. "On the Formation of Interaction Networks in Social Coordination Games," Econometric Society World Congress 2000 Contributed Papers 0778, Econometric Society.
- Kandori, M. & Mailath, G.J., 1991.
"Learning, Mutation, And Long Run Equilibria In Games,"
71, Princeton, Woodrow Wilson School - John M. Olin Program.
- Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
- M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
- Canning, David, 1992.
"Average behavior in learning models,"
Journal of Economic Theory,
Elsevier, vol. 57(2), pages 442-472, August.
- John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
- Glen Ellison, 2010.
"Learning, Local Interaction, and Coordination,"
Levine's Working Paper Archive
391, David K. Levine.
- Joerg Oechssler, 1994.
"Decentralization and the Coordination Problem,"
Game Theory and Information
- Chwe, Michael Suk-Young, 2000. "Communication and Coordination in Social Networks," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 1-16, January.
- Lee, In Ho & Valentinyi, Akos, 2000. "Noisy Contagion without Mutation," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 47-56, January.
- Giorgio Fagiolo, 2005.
"A Note on Equilibrium Selection in Polya-Urn Coordination Games,"
LEM Papers Series
2005/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Giorgio Fagiolo, 2005. "A Note on Equilibrium Selection in Polya-Urn Coordination Games," Economics Bulletin, AccessEcon, vol. 3(45), pages 1-14.
- Jackson, Matthew O. & Watts, Alison, 2010.
"Social games: Matching and the play of finitely repeated games,"
Games and Economic Behavior,
Elsevier, vol. 70(1), pages 170-191, September.
- Matthew O. Jackson & Alison Watts, 2005. "Social Games: Matching and the Play of Finitely Repeated Games," Game Theory and Information 0503003, EconWPA.
- Jackson, Matthew O. & Watts, Alison, 2005. "Social Games: Matching and the play of finitely repeated games," Working Papers 1212, California Institute of Technology, Division of the Humanities and Social Sciences.
- Matthew O. Jackson & Alison Watts, 2005. "Social Games: Matching and the Play of Finitely Repeated Games," Working Papers 2005.38, Fondazione Eni Enrico Mattei.
- Beal, Sylvain & Querou, Nicolas, 2007.
"Bounded rationality and repeated network formation,"
Mathematical Social Sciences,
Elsevier, vol. 54(1), pages 71-89, July.
- Nicolas Querou & Sylvain Beal, 2006. "Bounded Rationality and Repeated Network Formation," Working Papers 2006.74, Fondazione Eni Enrico Mattei.
- Sanjeev Goyal, 2003. "Learning in Networks: a survey," Economics Discussion Papers 563, University of Essex, Department of Economics.
- Alfonso Rosa García & Hubert Janos Kiss, 2012.
Working Papers. Serie AD
2012-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Cowan,Robin, 2004. "Network models of innovation and knowledge diffusion," Research Memorandum 016, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
- Huck, Steffen & Ruchala, Gabriele K. & Tyran, Jean-Robert, 2006.
"Competition Fosters Trust,"
CEPR Discussion Papers
6009, C.E.P.R. Discussion Papers.
- Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
- Fernando Vega-Redondo, 2003. "Building Up Social Capital in a Changing World: A Network Approach," Working Papers 2003.53, Fondazione Eni Enrico Mattei.
- Fernando Vega Redondo, 2002.
"Building Up Social Capital In A Changing World,"
Working Papers. Serie AD
2002-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Dev, Pritha, 2010. "Choosing `Me' and `My Friends': Identity in a Non-Cooperative Network Formation Game with Cost Sharing," MPRA Paper 21631, University Library of Munich, Germany.
- George Ehrhardt & Matteo Marsili & Fernando Vega-Redondo, 2008. "Networks Emerging in a Volatile World," Economics Working Papers ECO2008/08, European University Institute.
- Hojman, Daniel & Szeidl, Adam, 2006. "Core and Periphery in Endogenous Networks," Working Paper Series rwp06-022, Harvard University, John F. Kennedy School of Government.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nick Vriend).
If references are entirely missing, you can add them using this form.