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

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  • Olaizola Ortega, 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, Norma & Valenciano Llovera, Federico, 2014. "From bilateral two-way to unilateral one-way flow link-formation," IKERLANAK Ikerlanak;2014-83, 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. Margherita Comola & Marcel Fafchamps, 2014. "Testing Unilateral and Bilateral Link Formation," Economic Journal, Royal Economic Society, vol. 124(579), pages 954-976, September.
    2. Bloch, Francis & Dutta, Bhaskar, 2009. "Communication networks with endogenous link strength," Games and Economic Behavior, Elsevier, pages 39-56.
    3. Olaizola, Norma & Valenciano, Federico, 2015. "Unilateral vs. bilateral link-formation: A transition without decay," Mathematical Social Sciences, Elsevier, vol. 74(C), pages 13-28.
    4. 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.
    5. 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.
    6. 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.
    7. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, May.
    8. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, pages 57-85.
    9. Sanjeev Goyal & Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Tinbergen Institute Discussion Papers 00-092/1, Tinbergen Institute.
    10. 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 Ikerlanak;2012-60, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    11. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, pages 57-85.
    12. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
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    More about this item

    Keywords

    network formation; unilateral link-formation; bilateral link-formation; stability; efficiency; dynamics;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D20 - Microeconomics - - Production and Organizations - - - General
    • J00 - Labor and Demographic Economics - - General - - - General

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