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Communication networks with endogenous link strength

  • Bloch, Francis
  • Dutta, Bhaskar

This paper analyzes the formation of networks when players choose how much to invest in each relationship. We suppose that players have a fixed endowment that they can allocate across links, and in the baseline model, suppose that link strength is an additively separable and convex function of individual investments, and that agents use the path which maximizes the product of link strengths. We show that both the stable and efficient network architectures are stars. However, the investments of the hub may differ in stable and efficient networks. Under alternative assumptions on the investment technology and the reliability measure, other network architectures can emerge as efficient and stable.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 66 (2009)
Issue (Month): 1 (May)
Pages: 39-56

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Handle: RePEc:eee:gamebe:v:66:y:2009:i:1:p:39-56
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. 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.
  2. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  3. Sanjeev Goyal & Alexander Konovalov & Jose Luis Moraga-Gonzalez, 2003. "Hybrid R&D," Economics Discussion Papers 564, University of Essex, Department of Economics.
  4. Gilles, R.P. & Sarangi, S., 2004. "Social Network Formation with Consent," Discussion Paper 2004-70, Tilburg University, Center for Economic Research.
  5. Jan K. Brueckner, 2004. "Friendship Networks," Econometric Society 2004 North American Winter Meetings 184, Econometric Society.
  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. Jacques Durieu & Hans Haller & Philippe Solal, 2004. "Nonspecific Networking," Game Theory and Information 0403005, EconWPA.
  8. Goyal, Sanjeev & Moraga-Gonzalez, Jose Luis, 2001. "R&D Networks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 686-707, Winter.
  9. 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.
  10. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Sanjeev Goyal, 2005. "Strong and Weak Links," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 608-616, 04/05.
  12. Feri, Francesco, 2007. "Stochastic stability in networks with decay," Journal of Economic Theory, Elsevier, vol. 135(1), pages 442-457, July.
  13. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  14. Bramoulle, Yann & Kranton, Rachel, 2007. "Public goods in networks," Journal of Economic Theory, Elsevier, vol. 135(1), pages 478-494, July.
  15. repec:dgr:kubcen:200470 is not listed on IDEAS
  16. Antonio Cabrales & Antoni Calvo-Armengol & Yves Zenou, 2007. "Effort and synergies in network formation," Economics Working Papers we072515, Universidad Carlos III, Departamento de Economía.
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