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Network formation with decreasing marginal benefits of information

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  • K.J.M. De Jaegher
  • J.J.A. Kamphorst

Abstract

In the two-way flow connections model of the seminal paper by Bala and Goyal (2000a), the marginal benefit of obtaining the information of one more player is constant. However, it is plausible that the marginal benefit of such information is decreasing. This paper explores the consequences for the stability of networks of such decreasing marginal benefits. We start by characterizing the strict Nash networks for both the case of constant and the case of decreasing marginal benefits. Using this characterization, we next explore how the set of strict Nash networks differs for the two cases. The results and intuition tells us that long diameter networks have certain features which make them relatively more likely to be stable under decreasing marginal benefits of information as compared to short diameter networks.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/31443/08-16.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 08-16.

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Length: 26 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:use:tkiwps:0816

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Related research

Keywords: Network Formation; Concave Benefits; Two-Way Flow Model;

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References

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  1. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
  2. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  3. Jurjen Kamphorst & Gerard van der Laan, 2004. "Network Formation under Heterogeneous Costs: The Multiple Group Model," Tinbergen Institute Discussion Papers 04-006/1, Tinbergen Institute.
  4. Goyal, Sanjeev & Vega-Redondo, Fernando, 2007. "Structural holes in social networks," Journal of Economic Theory, Elsevier, vol. 137(1), pages 460-492, November.
  5. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  6. Filippo VERGARA CAFFARELLI, 2004. "Non-Cooperative Network Formation with Network Maintenance Costs," Economics Working Papers ECO2004/18, European University Institute.
  7. Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
  8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  9. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
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Citations

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Cited by:
  1. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  2. Charoensook, Banchongsan, 2012. "A noncooperative model of network formation with decreasing productivity," MPRA Paper 36570, University Library of Munich, Germany.
  3. Billand, P. & Bravard, C. & Kamphorst, J. & Sarangi, S., 2013. "Confirming information flows in networks," Working Papers 2013-06, Grenoble Applied Economics Laboratory (GAEL).
  4. Berno Buechel & Vincent Buskens, 2008. "The dynamics of closeness and betweenness," Working Papers 398, Bielefeld University, Center for Mathematical Economics.
  5. 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.

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