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original papers : The stability and efficiency of directed communication networks

Author

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  • Matthew O. Jackson
  • Bhaskar Dutta

Abstract

This paper analyzes the formation of directed networks where self-interested individuals choose with whom they communicate. The focus of the paper is on whether the incentives of individuals to add or sever links will lead them to form networks that are efficient from a societal viewpoint. It is shown that for some contexts, to reconcile efficiency with individual incentives, benefits must either be redistributed in ways depending on "outsiders" who do not contribute to the productive value of the network, or in ways that violate equity (i.e., anonymity). It is also shown that there are interesting contexts for which it is possible to ensure that efficient networks are individually stable via (re)distributions that are balanced across components of the network, anonymous, and independent of the connections of non-contributing outsiders.

Suggested Citation

  • Matthew O. Jackson & Bhaskar Dutta, 2000. "original papers : The stability and efficiency of directed communication networks," Review of Economic Design, Springer;Society for Economic Design, vol. 5(3), pages 251-272.
  • Handle: RePEc:spr:reecde:v:5:y:2000:i:3:p:251-272
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    References listed on IDEAS

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    10. Rees, Ray, 1985. "The Theory of Principal and Agent: Part 1," Bulletin of Economic Research, Wiley Blackwell, vol. 37(1), pages 3-26, January.
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    Citations

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    Cited by:

    1. repec:hal:journl:halshs-00881125 is not listed on IDEAS
    2. Chisik, Richard & Davies, Ronald B., 2004. "Asymmetric FDI and tax-treaty bargaining: theory and evidence," Journal of Public Economics, Elsevier, pages 1119-1148.
    3. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
    4. Jackson, Matthew O. & Zenou, Yves, 2015. "Games on Networks," Handbook of Game Theory with Economic Applications, Elsevier.
    5. Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October.
    6. McBride, Michael, 2006. "Imperfect monitoring in communication networks," Journal of Economic Theory, Elsevier, vol. 126(1), pages 97-119, January.
    7. Kim, Chongmin & Wong, Kam-Chau, 2007. "Network formation and stable equilibrium," Journal of Economic Theory, Elsevier, vol. 133(1), pages 536-549, March.
    8. Jackson, Matthew O. & van den Nouweland, Anne, 2005. "Strongly stable networks," Games and Economic Behavior, Elsevier, vol. 51(2), pages 420-444, May.
    9. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    10. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
    11. Thayer Morrill, 2011. "Network formation under negative degree-based externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 40(2), pages 367-385, May.
    12. Slikker, Marco & Gilles, Robert P. & Norde, Henk & Tijs, Stef, 2005. "Directed networks, allocation properties and hierarchy formation," Mathematical Social Sciences, Elsevier, vol. 49(1), pages 55-80, January.
    13. David Goldbaum, 2016. "Networks formation to assist decision making," Working Paper Series 37, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    14. repec:hal:journl:halshs-00825266 is not listed on IDEAS
    15. Georgios Chasparis & Jeff Shamma, 2012. "Distributed Dynamic Reinforcement of Efficient Outcomes in Multiagent Coordination and Network Formation," Dynamic Games and Applications, Springer, vol. 2(1), pages 18-50, March.
    16. AJ Bostian & David Goldbaum, 2016. "Emergent Coordination among Competitors," Working Paper Series 36, Economics Discipline Group, UTS Business School, University of Technology, Sydney.

    More about this item

    Keywords

    Networks; stability; efficiency; incentives;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • D20 - Microeconomics - - Production and Organizations - - - General
    • J00 - Labor and Demographic Economics - - General - - - General

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