Two-way Flow Networks with Small Decay
AbstractThe set of equilibrium networks in the two-way flow model of network formation (Bala and Goyal, 2000) is very sensitive to the introduction of decay. Even if decay is small enough so that equilibrium networks are minimal, the set of equilibrium architectures becomes much richer, especially when the benefit functions are nonlinear. However, not much is known about these architectures. In this paper we remedy this gap in the literature. We characterize the equilibrium architectures. Moreover, we show results on the relative stability of different types of architectures. Three of the results are that (i) at most one players receives multiple links, (ii) the absolute diameter of equilibrium networks can be arbitrarily large, and (iii) large (small) diameter networks are relatively stable under concave (convex) benefit functions.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 09-34.
Length: 39 pages
Date of creation: Nov 2009
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Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-GTH-2009-12-19 (Game Theory)
- NEP-NET-2009-12-19 (Network Economics)
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