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A degree-distance-based connections model with negative and positive externalities

We develop a modification of the connections model by Jackson and Wolinsky (1996) that takes into account negative externalities arising from the connectivity of direct and indirect neighbors, thus combining aspects of the connections model and the co-author model. We consider a general functional form for agents' utility that incorporates both the effects of distance and of neighbors' degree. Consequently, we introduce a framework that can be seen as a degree-distance-based connections model with both negative and positive externalities. Our analysis shows how the introduction of negative externalities modifies certain results about stability and efficiency compared to the original connections model. In particular, we see the emergence of new stable structures, such as a star with links between peripheral nodes. We also identify structures, for example, certain disconnected networks, that are efficient in our model but which could not be efficient in the original connections model. While our results are proved for the general utility function, some of them are illustrated by using a specific functional form of the degree-distance-based utility.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2013/13040.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 13040.

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Length: 29 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:mse:cesdoc:13040
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  4. Thayer Morrill, 2011. "Network formation under negative degree-based externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 40(2), pages 367-385, May.
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  7. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2011. "On the Interaction between Heterogeneity and Decay in Two-way Flow Models," Working Papers 1109, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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  11. Matthew O. Jackson & Anne van den Nouweland, 2002. "Strongly Stable Networks," Microeconomics 0211006, EconWPA.
  12. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2012. "Directed Networks with Spillovers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(6), pages 849-878, December.
  13. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
  14. Tim Hellmann, 2013. "On the existence and uniqueness of pairwise stable networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(1), pages 211-237, February.
  15. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  16. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(3), pages 319-349, October.
  17. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
  18. Sergio Currarini, 2006. "Network Design in Games with Spillovers," Working Papers 2006_16, Department of Economics, University of Venice "Ca' Foscari".
  19. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer;Society for Economic Design, vol. 5(3), pages 273-299.
  20. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
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