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Communication networks with endogeneous link strength

Author

Listed:
  • Francis Bloch

    (Ecole Polytechnique, France)

  • Bhaskar Dutta

    () (University of Warwick, UK)

Abstract

This paper analyzes the formation of networks when players choose how much to invest in each relationship. We suppose that players have a fixed endowment that they can allocate across links, and in the baseline model, suppose that link strength is an additively separable and convex function of individual investments, and that agents use the path which maximizes the product of link strengths. We show that both the stable and efficient network architectures are stars. However, the investments of the hub may differ in stable and efficient networks. Under alternative assumptions on the investment technology and the reliability measure, other network architectures can emerge as efficient and stable.

Suggested Citation

  • Francis Bloch & Bhaskar Dutta, 2008. "Communication networks with endogeneous link strength," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-15, Indian Statistical Institute, New Delhi, India.
  • Handle: RePEc:ind:isipdp:08-15
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    File URL: http://www.isid.ac.in/~pu/dispapers/dp08-15.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    communication networks; network reliability; endogenous link strength;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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