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Network Formation with Heterogenous Agents

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Author Info

  • Juan Larrosa

    (CONICET- Universidad Nacional del Sur)

  • Fernando Tohme

    (CONICET- Universidad Nacional del Sur)

Abstract

The present paper analyzes a network formation problem, mainly based on the framework presented in Bala and Goyal (2000). We depart from their assumptions in two crucial aspects. On one hand, we assume that connecting to an agent pays of not only for the number of connections that the agent can provide but also for her intrinsic value. Since the values of the agents (which represent the amounts of information held by the agents) difer from agent to agent, we are introducing heterogeneity in the framework. On the other hand, we assume that each path connecting two agents has an associated cost which is the sum of the number of edges it includes. We obtain as a result that the only Nash structure is the circle network, which emerges as a robust and optimal structure that maximizes the benefits of the interactions among agents while at the same time it minimizes the costs of network formation.

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File URL: http://128.118.178.162/eps/mic/papers/0301/0301002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0301002.

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Length: 14 pages
Date of creation: 18 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwpmi:0301002

Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 14 ; figures: included. 14 pages, pdf, prepared from dvips - figures included
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Web page: http://128.118.178.162

Related research

Keywords: network; game theory; heterogeneity; circle network;

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References

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  1. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  2. Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 1995. "Link formation in cooperative situations," Discussion Paper 1995-35, Tilburg University, Center for Economic Research.
  3. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  5. Slikker, M. & Nouweland, C.G.A.M. van den, 1997. "A One-Stage Model of Link Formation and Payoff Division," Discussion Paper 1997-23, Tilburg University, Center for Economic Research.
  6. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
  7. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
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Citations

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Cited by:
  1. Rong Rong & Daniel Houser, 2012. "Growing Stars: A Laboratory Analysis of Network Formation," Working Papers 1035, George Mason University, Interdisciplinary Center for Economic Science, revised Oct 2012.
  2. 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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