Communication Networks with Endogenous Link Strength
AbstractThis paper analyzes the formation of communication networks when players choose endogenously their investment on communication links. We consider two alternative de?nitions of network reliability ; product reliability, where the decay of information depends on the product of the strength of communication links, and min reliability where the speed of connection is a¤ected by the weakest communication link. When investments are separable, the architecture of the efficient network depends crucially on the shape of the transformation function linking investments to the quality of communication links. With increasing marginal returns to investment, the efficient network is a star ; with decreasing marginal returns, the con?ict between maximization of direct and indirect bene?ts prevents a complete characterization of efficient networks. However, with min reliability, the efficient network must be a tree. Furthermore, in the particular case of linear transformation functions, in an e¢ cient network, all links must have equal strength. When investments are perfect complements, the results change drastically : under product reliability, the efficient network must contain a cycle, and is in fact a circle for small societies. With min reliability, the e¢ cient network is either a circle or a line. As in classical models of network formation, e fficient networks may not be supported by private invesment decisions. We provide examples to show that the star may not be stable when the transformation functions is strictly convex. We also note that with perfect substitutes and perfect complements (when the e¢ cient network displays a very symmetric structure), the e¢ cient network can indeed be supported by private investments when the society is large.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 723.
Length: 36 pages
Date of creation: 2005
Date of revision:
communication networks ; network reliability;
Other versions of this item:
- Bloch, Francis & Dutta, Bhaskar, 2009. "Communication networks with endogenous link strength," Games and Economic Behavior, Elsevier, vol. 66(1), pages 39-56, May.
- Francis Bloch & Bhaskar Dutta, 2008. "Communication networks with endogeneous link strength," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-15, Indian Statistical Institute, New Delhi, India.
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-10 (All new papers)
- NEP-GTH-2006-06-10 (Game Theory)
- NEP-MIC-2006-06-10 (Microeconomics)
- NEP-NET-2006-06-10 (Network Economics)
- NEP-SOC-2006-06-10 (Social Norms & Social Capital)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jacques Durieu & Hans Haller & Philippe Solal, 2004. "Nonspecific Networking," Game Theory and Information 0403005, EconWPA.
- Jan K. Brueckner, 2006.
Journal of Regional Science,
Wiley Blackwell, vol. 46(5), pages 847-865.
- Jan K. Brueckner, 2004. "Friendship Networks," Econometric Society 2004 North American Winter Meetings 184, Econometric Society.
- Dutta, Bhaskar & Mutuswami, Suresh, 1996.
971, California Institute of Technology, Division of the Humanities and Social Sciences.
- Sanjeev Goyal & Jose Luis Moraga, 2000. "R&D Networks," Tinbergen Institute Discussion Papers 00-075/1, Tinbergen Institute.
- Matt Jackson, 2003.
"The Effects of Social Networks on Employment and Inequality,"
Theory workshop papers
658612000000000032, UCLA Department of Economics.
- Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
- Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
- Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
- Goyal, S. & Moraga-Gonzalez, J.L., 2000.
Econometric Institute Report
EI 2000-26A, Erasmus University Rotterdam, Econometric Institute.
- Sanjeev Goyal, 2005. "Strong and Weak Links," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 608-616, 04/05.
- Bloch, Francis & Jackson, Matthew O., 2007.
"The formation of networks with transfers among players,"
Journal of Economic Theory,
Elsevier, vol. 133(1), pages 83-110, March.
- Matthew O. Jackson & Francis Bloch, 2004. "The Formation of Networks with Transfers among Players," Working Papers 2004.80, Fondazione Eni Enrico Mattei.
- Bloch, Francis & Jackson, Matthew, 2004. "The Formation of Networks with Transfers among Players," Working Papers 1194, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bramoulle, Yann & Kranton, Rachel, 2007. "Public goods in networks," Journal of Economic Theory, Elsevier, vol. 135(1), pages 478-494, July.
- Cabrales, Antonio & Calvó-Armengol, Antoni & Zenou, Yves, .
"Effort and synergies in network formation,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/676, Universidad Carlos III de Madrid.
- Gilles, R.P. & Sarangi, S., 2004. "Social Network Formation with Consent," Discussion Paper 2004-70, Tilburg University, Center for Economic Research.
- Feri, Francesco, 2007. "Stochastic stability in networks with decay," Journal of Economic Theory, Elsevier, vol. 135(1), pages 442-457, July.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helen Neal).
If references are entirely missing, you can add them using this form.