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Shadow links

Author

Listed:
  • FOERSTER Manuel,

    (Universität Hamburg)

  • MAULEON Ana,

    (Université Saint-Louis Bruxelles and CORE, UCLouvain)

  • VANNETELBOSCH Vincent,

    (CORE, UCLouvain)

Abstract

We propose a framework of network formation where players can form two types of links: public links are observed by everyone and shadow links are only observed by neighbors. We introduce a novel solution concept called rationalizable peer-confirming pairwise stability, which generalizes Jackson and Wolinsky (1996)’s pairwise stability notion to accommodate shadow links. We then study the case when public links and shadowlinks are perfect substitutes and relate our concept to pairwise stability. Finally, we consider two specific models and show how false beliefs about others’ behavior may lead to segregation in friendship networks with homophily, reducing social welfare.

Suggested Citation

  • FOERSTER Manuel, & MAULEON Ana, & VANNETELBOSCH Vincent,, 2018. "Shadow links," LIDAM Discussion Papers CORE 2018030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2018030
    as

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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2018.html
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    Other versions of this item:

    • Foerster, Manuel & Mauleon, Ana & Vannetelbosch, Vincent, 2021. "Shadow links," LIDAM Reprints CORE 3171, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    References listed on IDEAS

    as
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    More about this item

    Keywords

    network formation; peer-confirming beliefs; private information; rationalizability; shadow links; stability;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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