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Network Formation with Heterogenous Agents

  • Juan Larrosa

    (CONICET- Universidad Nacional del Sur)

  • Fernando Tohme

    (CONICET- Universidad Nacional del Sur)

The present paper analyzes a network formation problem, mainly based on the framework presented in Bala and Goyal (2000). We depart from their assumptions in two crucial aspects. On one hand, we assume that connecting to an agent pays of not only for the number of connections that the agent can provide but also for her intrinsic value. Since the values of the agents (which represent the amounts of information held by the agents) difer from agent to agent, we are introducing heterogeneity in the framework. On the other hand, we assume that each path connecting two agents has an associated cost which is the sum of the number of edges it includes. We obtain as a result that the only Nash structure is the circle network, which emerges as a robust and optimal structure that maximizes the benefits of the interactions among agents while at the same time it minimizes the costs of network formation.

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File URL: http://econwpa.repec.org/eps/mic/papers/0301/0301002.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0301002.

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Length: 14 pages
Date of creation: 18 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwpmi:0301002
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 14 ; figures: included. 14 pages, pdf, prepared from dvips - figures included
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  1. Slikker, M. & van den Nouweland, C.G.A.M., 1997. "A One-Stage Model of Link Formation and Payoff Division," Discussion Paper 1997-23, Tilburg University, Center for Economic Research.
  2. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  3. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. 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.
  5. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
  7. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
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