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Two-way Flow Networks with Small Decay

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  • Kris De Jaegher

    ()

  • Jurjen Kamphorst

    ()

Abstract

The 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 Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 09-34.

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Length: 39 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:use:tkiwps:0934

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Keywords: Network formation; two-way flow model; decay; non-linear benefits;

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  1. Jurjen Kamphorst & Gerard Van Der Laan, 2007. "Network Formation Under Heterogeneous Costs: The Multiple Group Model," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 599-635.
  2. Andrea Galeotti & Sanjeev Goyal, 2002. "Network Formation with Heterogeneous Players," Tinbergen Institute Discussion Papers 02-069/1, Tinbergen Institute.
  3. Bloch, Francis & Dutta, Bhaskar, 2005. "Communication Networks with Endogenous Link Strength," The Warwick Economics Research Paper Series (TWERPS) 723, University of Warwick, Department of Economics.
  4. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
  5. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  6. Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
  7. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  8. Filippo VERGARA CAFFARELLI, 2004. "Non-Cooperative Network Formation with Network Maintenance Costs," Economics Working Papers ECO2004/18, European University Institute.
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