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Networks And Farsighted Stability

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  • Page Jr, Frank H

    (Department of Finance, University of Alabama)

  • Wooders, Myrna H.

    (Department of Economics, University of Warwick)

  • Kamat, Samir

    (Portfolio Management Group, Wachovia Corporation)

Abstract

The main contribution of this paper is to provide a framework in which the notion of farsighted stability for games, introduced by Chwe (1994), can be applied to directed networks. In particular, we introduce the notion of a supernetwork. A supernetwork is made up of a collection of directed networks (the nodes) and uniquely represents (via the arcs connecting the nodes) agent preferences and the rules governing network formation. By reformulating Chwe’s basic result on the nonemptiness of farsightedly stable sets, we show that for any supernetwork (i.e., for any collection of directed networks and any collection of rules governing network formation), there exists a farsightedly stable directed network. We also introduce the notion of a Nash network relative to a given supernetwork, as well as the notions of symmetric, nonsimultaneous, and decomposable supernetworks. To illustrate the utility of our framework, we present several examples of supernetworks, compute the farsightedly stable networks, and the Nash networks.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 660.

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Length: 34 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:wrk:warwec:660

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  1. Page Jr, Frank H & Wooders, Myrna H. & Kamat, Samir, 2002. "Networks And Farsighted Stability," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 660, University of Warwick, Department of Economics.
  2. Deroian, Frederic, 2003. "Farsighted strategies in the formation of a communication network," Economics Letters, Elsevier, Elsevier, vol. 80(3), pages 343-349, September.
  3. Li, Shuhe, 1992. "Far-sighted strong equilibrium and oligopoly," Economics Letters, Elsevier, Elsevier, vol. 40(1), pages 39-44, September.
  4. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, Elsevier, vol. 34(2), pages 331-341, February.
  5. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, Elsevier, vol. 74(2), pages 277-282, January.
  6. John C. Harsanyi, 1974. "An Equilibrium-Point Interpretation of Stable Sets and a Proposed Alternative Definition," Management Science, INFORMS, INFORMS, vol. 20(11), pages 1472-1495, July.
  7. Licun Xue, 1998. "Coalitional stability under perfect foresight," Economic Theory, Springer, Springer, vol. 11(3), pages 603-627.
  8. Shapley, Lloyd S & Shubik, Martin, 1969. "On the Core of an Economic System with Externalities," American Economic Review, American Economic Association, American Economic Association, vol. 59(4), pages 678-84, Part I Se.
  9. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Ana, MAULEON & Vincent, VANNETELBOSCH, 2003. "Farsightedness and Cautiousness in Coalition Formation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2003003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  11. Hideo Konishi & Debraj Ray, 2000. "Coalition Formation as a Dynamic Process," Boston College Working Papers in Economics, Boston College Department of Economics 478, Boston College Department of Economics, revised 15 Apr 2002.
  12. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(2), pages 299-325, August.
  13. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  14. Bhaskar Dutta & Sayantan Ghosal & Debraj Ray, 2004. "Farsighted Network Formation," Working papers, Centre for Development Economics, Delhi School of Economics 122, Centre for Development Economics, Delhi School of Economics.
  15. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  16. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics, EconWPA 0211011, EconWPA.
  17. BHATTACHARYA, Anindya & ZIAD, Abderrahmane, 2003. "On conservative stable standard of behaviour in situations with perfect foresight," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2003049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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