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Networks and Favor Exchange Norms under Stochastic Costs

Author

Listed:
  • Seungmoon Choi

    () (School of Economics, University of Adelaide)

  • Virginie Masson

    () (School of Economics, University of Adelaide)

  • Angus Moore
  • Mandar Oak

    () (School of Economics, University of Adelaide)

Abstract

We develop a model of favor exchange in a network setting where the cost of performing favors is stochastic. For any given favor exchange norm, we allow for the endogenous determination of the network structure via a link deletion game. We characterize the set of stable as well as equilibrium systems and show that these sets are identical. The most efficient network topology and favor exchange convention are generically shown to be not supported as equilibrium of the link deletion game. Our model provides a useful framework for understanding the topology of favor exchange networks. While the model exhibits positive externalities, its properties differ from the "information transmission" model à la Jackson and Wolinsky, as evidenced by the emergence of regular networks as opposed to star networks as stable and efficient network structures.

Suggested Citation

  • Seungmoon Choi & Virginie Masson & Angus Moore & Mandar Oak, 2013. "Networks and Favor Exchange Norms under Stochastic Costs," School of Economics Working Papers 2013-04, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2013-04
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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2013-04.pdf
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    References listed on IDEAS

    as
    1. Antoni Calvó-Armengol & Rahmi İlkılıç, 2009. "Pairwise-stability and Nash equilibria in network formation," International Journal of Game Theory, Springer;Game Theory Society, vol. 38(1), pages 51-79, March.
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    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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