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Farsightedly Basic Networks

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Author Info

  • 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

We make two main contributions to the theory of network formation. First, we introduce a new notion of farsighted equilibrium in network formation. In particular, we introduce the notion of a farsightedly basic network, as well as the notion of a farsighted basis. Given the feasible set of networks, the rules governing network formation, and the preferences of individuals, a farsightedly basic network contained in the farsighted basis represents a possible final resting point (or absorbing state) of a network formation process in which agents behave farsightedly. Thus, the set of networks forming a farsighted basis contains networks which are likely to emerge and persist if individuals behave farsightedly. Second, we show that given any set of rules governing network formation and given any profile of individual preferences over the feasible set of networks, there exists a nonempty subset of networks forming a farsighted basis of the network formation process.

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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 702.

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Length: 23 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:wrk:warwec:702

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Keywords: network formation ; supernetworks ; farsighted stability;

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References

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  1. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
  2. Bhaskar Dutta & Sayantan Ghosal & Debraj Ray, 2004. "Farsighted Network Formation," Working papers 122, Centre for Development Economics, Delhi School of Economics.
  3. Page Jr, Frank H & Wooders, Myrna H & Kamat, Samir, 2001. "Networks And Farsighted Stability," The Warwick Economics Research Paper Series (TWERPS) 621, University of Warwick, Department of Economics.
  4. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
  6. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  8. Deroian, Frederic, 2003. "Farsighted strategies in the formation of a communication network," Economics Letters, Elsevier, vol. 80(3), pages 343-349, September.
  9. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, vol. 63(2), pages 299-325, August.
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