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Networks with decreasing returns to linking

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  • Filippo Vergara Caffarelli

    (Bank of Italy JEL classification: C72, D83, D85)

Abstract

This paper presents a model of non-cooperative network formation in which the marginal benefit of new links eventually decreases. Agents link with each other to gain information and update their links according to better-reply dynamics. In the long run the system settles to a unique network architecture that consists of a constellation of starred wheels. This is reminiscent of some real-world features. Collections of smaller disjoint networks connecting only a few agents are more common than global networks connecting all the agents in a community. Differences within a connected component such as the centre and the periphery are established.

Suggested Citation

  • Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_734_09
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2009/2009-0734/en_tema_734.pdf
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    References listed on IDEAS

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    2. Charoensook, Banchongsan, 2012. "A noncooperative model of network formation with decreasing productivity," MPRA Paper 36570, University Library of Munich, Germany.

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    networks; coordination; learning dynamics; non-cooperative games;
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