Strategic basins of attraction, the farsighted core, and network formation games
Page, Frank H. and Wooders, Myrna Holtz (2005) Strategic basins of attraction, the farsighted core, and network formation games. Working Paper. University of Warwick, Department of Economics, Coventry.
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We make four main contributions to the theory of network formation. (1) The problem of network formation with farsighted agents can be formulated as an abstract network formation game. (2) In any farsighted network formation game the feasible set of networks contains a unique, finite, disjoint collection of nonempty subsets having the property that each subset forms a strategic basin of attraction. These basins of attraction contain all the networks that are likely to emerge and persist if individuals behave farsightedly in playing the network formation game. (3) A von Neumann Morgenstern stable set of the farsighted network formation game is constructed by selecting one network from each basin of attraction. We refer to any such von Neumann-Morgebstern stable set as farsighted basis. (4) The core of the farsighted network formation games is constructed by selecting one network from each basin of attraction containing a single network. We call this notion of the core, the farsighted core. We conclude that the farsighted core is nonempty if and only if there exists one farsighted basin of attraction containing a single network. To relate our three equilibrium and stability notions (basins of attraction, farsighted basis and farsighted core) to recent work by Jackson and Wolinsky (1996), we define a notion of pairwise stability similar to the Jackson-Wolinsky notion and we show that a farsighted core is contained in the set of pairwise stable networks. Finally, we introduce, via an example, competitative contracting networks and highlight how the analysis of these networks requires the new features of our network formation model.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||Q Science > QA Mathematics
H Social Sciences > HM Sociology
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Economics -- Sociological aspects, Social networks, Attractors (Mathematics), Differentiable dynamical systems, Labor economics, Production functions (Economic theory)|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||37|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Available As:||Page, F.H. and Wooders, M.H. (2005). Strategic basins of attraction, the farsighted core, and network formation games. Milano : Fondazione Eni Enrico Mattei. (FEEM working paper, no.36.05)|
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