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Communication Network Formation with Link Specificity and Value Transferability

  • Harmsen - van Hout, Marjolein J.W.

    ()

    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

  • Herings, P. Jean-Jacques

    ()

    (Department of Economics, School of Business and Economics, Maastricht University)

  • Dellaert, Benedict G.C.

    ()

    (Department of Business Economics / Marketing Section, Erasmus School of Economics, Erasmus University Rotterdam)

We propose a model on strategic formation of communication networks with (i) link specificity: the more direct links somebody maintains, the less she can specify her attention per link, the lower her links’ value, while this negative externality was previously ignored in the communication context, and (ii) value transferability via indirect links for informational but not for social value from communication, while this positive externality was modeled uniformly before. Assuming only social value to isolate the impact of link specificity, the pairwise stable set includes many nonstandard networks under high or particular combinations of fully connected components under low link specificity. Allowing for social and informational value, the joint effect of link specificity and value transferability reduces the stable set to certain fragmented networks under high or the complete network under low link specificity. These extremes are beneficial for efficiency, whereas quite inefficient networks may arise for intermediate link specificity.

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Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 15/2010.

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Length: 34 pages
Date of creation: Nov 2010
Date of revision: Mar 2011
Handle: RePEc:ris:fcnwpa:2010_015
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