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The impact of liberalizing cost-saharing on basic models of network formation

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  • Olaizola Ortega, María Norma
  • Valenciano Llovera, Federico

Abstract

This paper studies the impact of "liberalizing " the cost-sharing of links on some basic models of network formation. This is done in a setting where both doubly supported and singly supported links are possible, and which includes the two seminal models of network formation by Jackson and Wolinsky and Bala and Goyal as extreme cases. In this setting, the notion of pairwise stability is extended and it is proved that liberalizing cost-sharing for doubly supported links widens the range of values of the parameters where the efficient networks formed by such type of links are pairwise stable, while the range of values of the parameters where the efficient networks formed by singly supported links are pairwise stable shrinks, but the region where the latter are e¢ cient and pairwise stable remains the same.

Suggested Citation

  • Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2015. "The impact of liberalizing cost-saharing on basic models of network formation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:15773
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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, January.
    3. 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.
    4. 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.
    5. Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521674096, January.
    6. Miguel A. Meléndez-Jiménez, 2007. "A Bargaining Approach To Coordination In Networks," Working Papers. Serie AD 2007-28, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. 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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