Networks and Favor Exchange Norms under Stochastic Costs
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 Ã la Jackson and Wolinsky, as evidenced by the emergence of regular networks as opposed to star networks as stable and efficient network structures.
|Date of creation:||Apr 2013|
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- Antoni Calvó-Armengol & Rahmi Ilkiliç, 2004.
"Pairwise-Stability and Nash Equilibria in Network Formation,"
182, Barcelona Graduate School of Economics.
- 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.
- Antoni Calvó-Armengol & Rahmi Ilkiliç, 2005. "Pairwise-Stability and Nash Equilibria in Network Formation," Working Papers 2005.34, Fondazione Eni Enrico Mattei.
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