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Two-way Flow Networks with Small Decay

The set of equilibrium networks in the two-way flow model of network formation (Bala and Goyal, 2000) is very sensitive to the introduction of decay. Even if decay is small enough so that equilibrium networks are minimal, the set of equilibrium architectures becomes much richer, especially when the benefit functions are nonlinear. However, not much is known about these architectures. In this paper we remedy this gap in the literature. We characterize the equilibrium architectures. Moreover, we show results on the relative stability of different types of architectures. Three of the results are that (i) at most one players receives multiple links, (ii) the absolute diameter of equilibrium networks can be arbitrarily large, and (iii) large (small) diameter networks are relatively stable under concave (convex) benefit functions.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/309685/09_34.pdf
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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-34.

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Date of creation: Nov 2009
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Handle: RePEc:use:tkiwps:0934
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  1. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
  2. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  3. Berno Buechel, 2007. "Network formation with closeness incentives," Working Papers 395, Bielefeld University, Center for Mathematical Economics.
  4. Filippo VERGARA CAFFARELLI, 2004. "Non-Cooperative Network Formation with Network Maintenance Costs," Economics Working Papers ECO2004/18, European University Institute.
  5. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
  6. Jurjen Kamphorst & Gerard Van Der Laan, 2007. "Network Formation Under Heterogeneous Costs: The Multiple Group Model," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 599-635.
  7. Bloch, Francis & Dutta, Bhaskar, 2005. "Communication Networks with Endogenous Link Strength," The Warwick Economics Research Paper Series (TWERPS) 723, University of Warwick, Department of Economics.
  8. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  9. Hojman, Daniel A. & Szeidl, Adam, 2008. "Core and periphery in networks," Journal of Economic Theory, Elsevier, vol. 139(1), pages 295-309, March.
  10. Sudipta Sarangi & Pascal Billand & Christophe Bravard, . "Heterogeneity in Nash Networks," Departmental Working Papers 2006-18, Department of Economics, Louisiana State University.
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