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Farsighted Network Formation

Author

Listed:
  • Bhaskar Dutta

    (University of Warwick)

  • Sayantan Ghosal

    (University of Warwick)

  • Debraj Ray

    (University of New York)

Abstract

This paper studies a model of dynamic network formation when individuals are farsighted : players evaluate the desirability of a “current” move in terms of its consequences on the entire discounted stream of payoffs. We define a concept of equilibrium which takes into account far-sighted behavior of agents and allows for limited cooperation amongst agents. We show that an equilibrium process of network formation exists. We also show that there are network structures in which no equilibrium strategy profile can sustain efficient networks. We then provide sufficient conditions under which the equilibrium process will yield efficient outcomes.

Suggested Citation

  • Bhaskar Dutta & Sayantan Ghosal & Debraj Ray, 2004. "Farsighted Network Formation," Working papers 122, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:122
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Network formation; farsightedness; equilibrium; efficiency.;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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