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Strategic Basins of Attraction, the Path Dominance Core, and Network Formation Games

  • Frank Page

    ()

    (Indiana University Bloomington)

  • Myrna Wooders

    ()

    (Vanderbilt University)

Given the preferences of players and the rules governing network formation, what networks are likely to emerge and persist? And how do individuals and coalitions evaluate possible consequences of their actions in forming networks? To address these questions we introduce a model of network formation whose primitives consist of a feasible set of networks, player preferences, the rules of network formation, and a dominance relation on feasible networks. The rules of network formation may range from non-cooperative, where players may only act unilaterally, to cooperative, where coalitions of players may act in concert. The dominance relation over feasible networks incorporates not only player preferences and the rules of network formation but also assumptions concerning the degree of farsightedness of players. A specification of the primitives induces an abstract game consisting of (i) a feasible set of networks, and (ii) a path dominance relation defined on the feasible set of networks. Using this induced game we characterize sets of network outcomes that are likely to emerge and persist. Finally, we apply our approach and results to characterize the equilibrium of well known models and their rules of network formation, such as those of Jackson and Wolinsky (1996) and Jackson and van den Nouweland (2005).

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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2007/CAEPR2007-020.pdf
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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-020.

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Length: 37 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:inu:caeprp:2007020
Contact details of provider: Postal: 812-855-1021
Phone: 812-855-1021
Fax: 812-855-3736
Web page: http://www.iub.edu/~caepr
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