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Stability and Equilibrium Selection in a Link Formation Game

Listed author(s):
  • Rodrigo J. Harrison

    (UTFSM Chile and Georgetown University USA)

  • Roberto Munoz

    (University of Maryland)

Registered author(s):

    In this paper we use a non cooperative equilibrium selection approach as a notion of stability in link formation games. Specifically, we follow the global games approach first introduced by Carlsson and van Damme (1993), to study the robustness of the set of Nash equilibria for a class of link formation games in strategic form with supermodular payoff functions. Interestingly, the equilibrium selected is in conflict with those predicted by the traditional cooperative refinements. Moreover, we get a conflict between stability and efficiency even when no such conflict exists with the cooperative refinements. We discuss some practical issues that these different theoretical approaches raise in reality. The paper also provides an extension of the global game theory that can be applied beyond network literature.

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    File URL: http://econwpa.repec.org/eps/game/papers/0306/0306004.pdf
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    Paper provided by EconWPA in its series Game Theory and Information with number 0306004.

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    Length: 45 pages
    Date of creation: 25 Jun 2003
    Handle: RePEc:wpa:wuwpga:0306004
    Note: Type of Document - Acrobat PDF; pages: 45
    Contact details of provider: Web page: http://econwpa.repec.org

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    1. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers Archive 11920, Iowa State University, Department of Economics.
    2. Leigh Tesfatsion, 1998. "Gale-Shapley Matching in an Evolutionary Trade Network Game," Game Theory and Information 9805004, EconWPA, revised 26 Jul 1998.
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    4. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
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      • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
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    7. Sanjeev Goyal & Jose Luis Moraga, 2000. "R&D Networks," Tinbergen Institute Discussion Papers 00-075/1, Tinbergen Institute.
    8. Dutta, B. & van den Nouweland, C.G.A.M. & Tijs, S.H., 1998. "Link formation in cooperative situations," Other publications TiSEM fb302bdf-f6ab-4909-99d5-5, Tilburg University, School of Economics and Management.
    9. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    10. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
    11. Atsushi Kajii & Stephen Morris, "undated". "The Robustness of Equilibria to Incomplete Information," Penn CARESS Working Papers ed504c985fc375cbe719b3f60, Penn Economics Department.
    12. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
    13. Gerard Weisbuch & Alan Kirman & Dorothea Herreiner, 1995. "Market Organization," Working Papers 95-11-102, Santa Fe Institute.
    14. Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
    15. Tesfatsion, Leigh, 1997. "A Trade Network Game with Endogenous Partner Selection," Staff General Research Papers Archive 1680, Iowa State University, Department of Economics.
    16. Gehrig, Thomas & R├ęgibeau, Pierre & Rockett, Katharine, 1998. "Project Evaluation and Organizational Form," CEPR Discussion Papers 1888, C.E.P.R. Discussion Papers.
    17. Rachel E. Kranton & Deborah F. Minehart, 1999. "Competition for Goods in Buyer-Seller Networks," Cowles Foundation Discussion Papers 1232, Cowles Foundation for Research in Economics, Yale University.
    18. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, September.
    19. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
    20. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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