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From bilateral two-way to unilateral one-way flow link-formation

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  • Olaizola Ortega, María Norma
  • Valenciano Llovera, Federico

Abstract

We provide a model that bridges de gap between the simplest variation of two benchmark models of strategic network formation: Bala and Goyal s one-way ow model without decay, where links can be unilaterally formed, and a variation without decay of Jackson and Wolinsky s connections model based on bilateral formation of links. In the model introduced here, a link can be created unilaterally, but when it is only supported by one player the ow through the link only occurs towards the player supporting it and su¤ers some degree of decay, while when it is supported by both the ow runs without friction in both directions. When the decay in links supported by only one player is maximal (i.e. there is no ow) we have Jackson and Wolinsky s connections model without decay, while when ow in those links is perfect towards the player supporting them, we have Bala and Goyal s one-way ow model. We study Nash, strict Nash and pairwise Nash stability for the intermediate models. E¢ ciency and dynamics are also discussed.

Suggested Citation

  • Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2014. "From bilateral two-way to unilateral one-way flow link-formation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:13991
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    References listed on IDEAS

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    1. Olaizola, Norma & Valenciano, Federico, 2015. "Unilateral vs. bilateral link-formation: A transition without decay," Mathematical Social Sciences, Elsevier, vol. 74(C), pages 13-28.
    2. Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521857406.
    3. Sanjeev Goyal, 2007. "Introduction to Connections: An Introduction to the Economics of Networks," Introductory Chapters, in: Connections: An Introduction to the Economics of Networks, Princeton University Press.
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    6. Margherita Comola & Marcel Fafchamps, 2014. "Testing Unilateral and Bilateral Link Formation," Economic Journal, Royal Economic Society, vol. 124(579), pages 954-976, September.
    7. Bloch, Francis & Dutta, Bhaskar, 2009. "Communication networks with endogenous link strength," Games and Economic Behavior, Elsevier, vol. 66(1), pages 39-56, May.
    8. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April.
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    10. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
    11. Olaizola, Norma & Valenciano, Federico, 2014. "Asymmetric flow networks," European Journal of Operational Research, Elsevier, vol. 237(2), pages 566-579.
      • Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2012. "Asymmetric flow networks," IKERLANAK http://www-fae1-eao1-ehu-, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    12. Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521674096.
    13. Francis Bloch & Matthew Jackson, 2006. "Definitions of equilibrium in network formation games," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(3), pages 305-318, October.
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    More about this item

    Keywords

    network formation; unilateral link-formation; bilateral link-formation; stability; efficiency; dynamics;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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