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Network Formation with Heterogenous Agents

Author

Listed:
  • Juan Larrosa

    (CONICET- Universidad Nacional del Sur)

  • Fernando Tohme

    (CONICET- Universidad Nacional del Sur)

Abstract

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.

Suggested Citation

  • Juan Larrosa & Fernando Tohme, 2003. "Network Formation with Heterogenous Agents," Microeconomics 0301002, University Library of Munich, Germany.
    • 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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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/0301/0301002.pdf
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    References listed on IDEAS

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    1. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 245-256.
    2. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
    3. 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.
    4. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
      • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
    5. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
    6. Slikker, Marco & van den Nouweland, Anne, 2001. "A One-Stage Model of Link Formation and Payoff Division," Games and Economic Behavior, Elsevier, vol. 34(1), pages 153-175, January.
    7. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
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    Cited by:

    1. Rong, Rong & Houser, Daniel, 2015. "Growing stars: A laboratory analysis of network formation," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 380-394.
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    3. Anshelevich, Elliot & Shepherd, F.B. & Wilfong, Gordon, 2011. "Strategic network formation through peering and service agreements," Games and Economic Behavior, Elsevier, vol. 73(1), pages 17-38, September.
    4. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.

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    Keywords

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    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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