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On the Efficiency and Stability of a Two-Way Flow Network with Small Decay: A Note

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  • Banchongsan Charoensook

Abstract

The seminal two-way flow strategic network formation model of Bala and Goyal (2000b) exhibits a substantial tension between stability and efficiency. In this note, I show that despite this tension every link receiver in a Nash network serves as an efficient transmitter of information assuming a small degree of information decay. Thus, a strategic decision of every link sender, who always forms links with efficient link receivers for his own interest, does in part lead to a socially desirable outcome. I also show how this finding can potentially refine some results in the literature.

Suggested Citation

  • Banchongsan Charoensook, 2025. "On the Efficiency and Stability of a Two-Way Flow Network with Small Decay: A Note," Estudios de Economia, University of Chile, Department of Economics, vol. 52(2), pages 235-258, December.
    • Handle: RePEc:udc:esteco:v:52:y:2025:i:2:p:235-258
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/81724/80596
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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