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Farsighted network formation

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  • Dutta, Bhaskar
  • Ghosal, Sayantan
  • Ray, Debraj

Abstract

This paper studies a model of dynamic network formation when individuals are farsighted : players evaluate the desirability of a “current” move in terms of its consequences on the entire discounted stream of payoffs. We define a concept of equilibrium which takes into account far-sighted behavior of agents and allows for limited cooperation amongst agents. We show that an equilibrium process of network formation exists. We also show that there are network structures in which no equilibrium strategy profile can sustain efficient networks. We then provide sufficient conditions under which the equilibrium process will yield efficient outcomes.
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Suggested Citation

  • Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
  • Handle: RePEc:eee:jetheo:v:122:y:2005:i:2:p:143-164
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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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