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Subscription Mechanisms for Network Formation

  • Mutuswami, Suresh
  • Winter, Eyal

We analyze a model of network formation where the costs of link formation are publicly known but individual benefits are not known to the social planner. The objective is to design a simple mechanism ensuring efficiency, budget balance and equity. We propose two mechanisms towards this end; the first ensures efficiency and budget balance but not equity. The second mechanism corrects the asymmetry in payoffs through a two-stage variant of the first mechanism. We also discuss an extension of the basic model to cover the case of directed graphs and give conditions under which the proposed mechanisms are immune to coalitional deviations.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 106 (2002)
Issue (Month): 2 (October)
Pages: 242-264

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Handle: RePEc:eee:jetheo:v:106:y:2002:i:2:p:242-264
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Bag, Parimal Kanti & Winter, Eyal, 1999. "Simple Subscription Mechanisms for Excludable Public Goods," Journal of Economic Theory, Elsevier, vol. 87(1), pages 72-94, July.
  3. Okada, Akira, 1996. "A Noncooperative Coalitional Bargaining Game with Random Proposers," Games and Economic Behavior, Elsevier, vol. 16(1), pages 97-108, September.
  4. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Seidmann, Daniel J & Winter, Eyal, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 793-815, October.
  6. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
  7. (*), Anne van den Nouweland & Marco Slikker, 2000. "original papers : Network formation models with costs for establishing links," Review of Economic Design, Springer, vol. 5(3), pages 333-362.
  8. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January.
  9. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer, vol. 5(3), pages 273-299.
  10. Sergio Currarini & Massimo Morelli, 2000. "original papers : Network formation with sequential demands," Review of Economic Design, Springer, vol. 5(3), pages 229-249.
  11. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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