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Club Formation Games with Farsighted Agents

  • Frank H. Page, Jr.

    ()

    (Department of Finance, University of Alabama)

  • Myrna H. Wooders

    ()

    (Department of Economics, Vanderbilt University)

Modeling club structures as bipartite networks, we formulate the problem of club formation as a game of network formation and identify those club networks that are stable if agents behave farsightedly in choosing their club memberships. Using the farsighted core as our stability notion, we show that if agents' payoffs are single-peaked and agents agree on the peak club size (i.e., agents agree on the optimal club size) and if there sufficiently many clubs to allow for the partition of agents into clubs of optimal size, then a necessary and sufficient condition for the farsighted core to be nonempty is that agents who end up in smaller-than-optimal size clubs have no incentive to switch their memberships to already existing clubs of optimal size. In contrast, we show via an example that if there are too few clubs relative to the number of agents, then the farsighted core may be empty. Contrary to prior results in the literature involving myopic behavior, our example shows that overcrowding and farsightedness lead to instability in club formation.

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File URL: http://www.accessecon.com/pubs/VUECON/vu05-w29.pdf
File Function: First version, 2005
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0529.

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Date of creation: Dec 2005
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Handle: RePEc:van:wpaper:0529
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, vol. 63(2), pages 299-325, August.
  3. Page Jr. Frank H & Wooders, Myrna & Kamat, Samir, 2003. "Networks and Farsighted Stability," The Warwick Economics Research Paper Series (TWERPS) 689, University of Warwick, Department of Economics.
  4. Gabrielle Demange, 2004. "Group formation: The interaction of increasing returns and preferences' diversity," DELTA Working Papers 2004-30, DELTA (Ecole normale supérieure).
  5. repec:cup:cbooks:9780521842716 is not listed on IDEAS
  6. Kirman, Alan P., 1983. "Communication in markets : A suggested approach," Economics Letters, Elsevier, vol. 12(2), pages 101-108.
  7. John P. Conley & Hideo Konishi, 2000. "Migration-Proof Tiebout Equilibrium: Existence and Asymptotic Efficiency," Boston College Working Papers in Economics 452, Boston College Department of Economics, revised 01 Dec 2000.
  8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  9. Konishi, Hideo & Weber, Shlomo & Le Breton, Michel, 1997. "Free mobility equilibrium in a local public goods economy with congestion," Research in Economics, Elsevier, vol. 51(1), pages 19-30, April.
  10. Arnold, Tone & Wooders, Myrna, 2002. "Dynamic Club Formation With Coordination," The Warwick Economics Research Paper Series (TWERPS) 640, University of Warwick, Department of Economics.
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