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The Role of Trust in Costly Network Formation

  • Sudipta Sarangi
  • Robert P. Gilles

We investigate game theoretic models of entwork formation that are based on individual actions only. Our approach is grounded in three simple and realistic principles. (1) Link formation should be a binary process of consent. (2) Link formation should be costly. (3) The class of network payoff functions should be as general as possible. We provide charecterizations of stable networks under the hypothesis of mutual consent for the case of two-sided and one-sided link formation costs. Furthermore, we introduce a new eqilibrium concept based on a limited, realistic form of farsightedness or (myopic) ''trust'' in network formation. We provide comparisons of the resulting networks with networks satisfying well known stability concepts developed in the literature

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 483.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:483
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  1. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA.
  2. Matthew O. Jackson, 2003. "Allocation Rules for Network Games," Game Theory and Information 0303010, EconWPA.
  3. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA.
  4. Samir Kamat & Frank Page & Myrna Wooders, 2004. "Networks and Farsighted Stability," Econometric Society 2004 North American Winter Meetings 561, Econometric Society.
  5. repec:ner:tilbur:urn:nbn:nl:ui:12-82556 is not listed on IDEAS
  6. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  7. Michael McBride, 2003. "Position-specific information in social networks: Are you connected?," Levine's Working Paper Archive 506439000000000265, David K. Levine.
  8. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Sudipta Sarangi & H. Haller, . "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
  10. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  11. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer, vol. 27(2), pages 245-256.
  12. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  13. repec:ner:tilbur:urn:nbn:nl:ui:12-77112 is not listed on IDEAS
  14. Ui, Takashi, 2000. "A Shapley Value Representation of Potential Games," Games and Economic Behavior, Elsevier, vol. 31(1), pages 121-135, April.
  15. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January.
  16. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  17. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
  18. Hart, Sergiu & Mas-Colell, Andreu, 1989. "Potential, Value, and Consistency," Econometrica, Econometric Society, vol. 57(3), pages 589-614, May.
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