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Characterization of efficient networks in a generalized connections model with endogenous link strength

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  • Olaizola Ortega, María Norma
  • Valenciano Llovera, Federico

Abstract

We consider a natural generalization of Jackson and Wolinsky s (1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly nonempty efficient networks, in the sense of maximizing the aggregate proffit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.

Suggested Citation

  • Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2019. "Characterization of efficient networks in a generalized connections model with endogenous link strength," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:34463
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    12. Olaizola Ortega, María Norma & Valenciano Llovera, Federico, 2018. "A Note on Efficiency in a Unifying Model of Strategic Network Formation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
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