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Nash Networks with Heterogeneous Agents

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  • Sudipta Sarangi

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  • H. Haller

Abstract

A non-cooperative model of network formation is developed. Agents form links with others based on the cost of the link and its assessed benefit. Link formation is one-sided, i.e., agents can initiate links with other agents with- out their consent, provided the agent forming the link makes the appropriate investment. Information flw is two-way. The model builds on the work of Bala and Goyal, but allows for agent heterogeneity. Whereas they permit links to fail with a certain common probability, in our model the probability of failure can be different for different links. We investigate Nash networks that exhibit connectedness and super-connectedness. We provide an explicit characterization of certain star networks. Efficiency and Pareto-optimality issues are discussed through examples. We explore alternative model specifications to address potential shortcomings.
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Suggested Citation

  • Sudipta Sarangi & H. Haller, 2003. "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
  • Handle: RePEc:lsu:lsuwpp:2003-06
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    Cited by:

    1. Sudipta Sarangi & Pascal Billand & Christophe Bravard, 2006. "Heterogeneity in Nash Networks," Departmental Working Papers 2006-18, Department of Economics, Louisiana State University.
    2. Gilles, Robert P. & Chakrabarti, Subhadip & Sarangi, Sudipta, 2012. "Nash equilibria of network formation games under consent," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 159-165.
    3. Anshelevich, Elliot & Shepherd, F.B. & Wilfong, Gordon, 2011. "Strategic network formation through peering and service agreements," Games and Economic Behavior, Elsevier, vol. 73(1), pages 17-38, September.
    4. Yangbo Song & Mihaela Schaar, 2015. "Dynamic network formation with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 301-331, June.
    5. Billand, Pascal & Bravard, Christophe, 2005. "A note on the characterization of Nash networks," Mathematical Social Sciences, Elsevier, vol. 49(3), pages 355-365, May.
    6. Gilles, R.P. & Sarangi, S., 2003. "The Role of Trust in Costly Network Formation," Discussion Paper 2003-53, Tilburg University, Center for Economic Research.
    7. Rajgopal Kannan & Lydia Ray & Sudipta Sarangi, 2007. "The structure of information networks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 119-134, January.
    8. Jun, Tackseung & Kim, Jeong-Yoo, 2007. "Connectivity, stability and efficiency in a network as an information flow," Mathematical Social Sciences, Elsevier, vol. 53(3), pages 314-331, May.
    9. Lasse Kliemann, 2011. "The Price of Anarchy for Network Formation in an Adversary Model," Games, MDPI, Open Access Journal, vol. 2(3), pages 1-31, August.
    10. Pramila Krishnan & Emanuela Sciubba, 2009. "Links and Architecture in Village Networks," Economic Journal, Royal Economic Society, vol. 119(537), pages 917-949, April.
    11. Harmsen - van Hout, Marjolein J.W. & Herings, P. Jean-Jacques & Dellaert ,Benedict G.C., 2006. "The Structure of Online Consumer Communication Networks," Research Memorandum 028, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    13. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
    14. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2008. "Existence of Nash networks in one-way flow models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 491-507, December.
    15. Rajgopal Kannan & Sudipta Sarangi & S. S. Iyengar, 2002. "Strategic Path Reliability in Information Networks," Discussion Papers of DIW Berlin 298, DIW Berlin, German Institute for Economic Research.
    16. D'Ignazio, A. & Giovannetti, E., 2004. "From Exogenous to Endogenous Networks: Internet Applications," Cambridge Working Papers in Economics 0445, Faculty of Economics, University of Cambridge.
    17. Sudipta Sarangi & Pascal Billand & Christophe Bravard, 2007. "Existence of Nash Networks in One-Way Flow Models (Revised Version of LSU Working Paper 2006-05)," Departmental Working Papers 2007-02, Department of Economics, Louisiana State University.
    18. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
    19. Jacques Durieu & Hans Haller & Philippe Solal, 2004. "Nonspecific Networking," Game Theory and Information 0403005, EconWPA.
    20. Michael Kosfeld, "undated". "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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