Page, Frank H., Wooders, Myrna Holtz and Kamat, Samir (2004) Farsightedly basic networks. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

We make two main contributions to the theory of economic and social network formation. First, we introduce the notion of a network formation network or a supernetwork. Supernetworks provide a framework in which we can formally define and analyze farsightedness in network formation. Second, we introduce a new notion of equilibrium corresponding to farsightedness. In particular, we introduce the notion of a farsightedly basic network, as well as the notion of a farsighted basis, and we show that all supernetworks possess a farsighted basis. A farsightedly basic network contained in the farsighted basis of a given supernetwork represents a possible final resting point (or absorbing state) of a network formation process in which agents behave farsightedly. Given the supernetwork representation of the rules governing network formation and the preferences of the individuals, a farsighted basis contains networks which are likely to emerge and persist if individuals behave farsightedly.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HM Sociology
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Business networks, Organizational sociology, Economics -- Sociological aspects, Organizational behavior, Social stability
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	July 2004
Number:	No.702
Number of Pages:	23
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Description:	Original version, July 2001, this version, July 2004.
Version or Related Resource:	Page, F.H., Wooders, M.H. and Kamat, S. (2003). Networks and farsighted stability. [Coventry] : University of Warwick, Economics Department. (Warwick economic research papers, no.689).
References:	[1] Berge, C. (2001) The Theory of Graphs, Dover, Mineola, New York. (reprint of the translated French edition published by Dunod, Paris, 1958). [2] Chwe, M. (1994) “Farsighted Coalitional Stability,” Journal of Economic Theory 63, pp. 299-325. [3] Deroian, F. (2003) “Farsighted Strategies in the Formation of a Communication Network,” Economic Letters 80, pp. 343-349. [4] Dutta, B., S. Ghosal and D. Ray (2003) “Farsighted Network Formation,” typescript, University of Warwick. [5] Dutta, B. and S. Mutuswami (1997) “Stable Networks,” Journal of Economic Theory 76, pp. 322-344. [6] Jackson, M. O. (2001) “The Stability and Efficiency of Economic and Social Networks.” In: Sertel, M. (ed.) Advances in Economic Design. Springer-Verlag, Berlin (in press). [7] Jackson, M. O. and A. van den Nouweland (2001) “Strongly Stable Networks,” typescript, Caltech. [8] Jackson, M. O. and A. Watts (2001) “The Evolution of Social and Economic Networks,” Caltech Working Paper 1044, Forthcoming in Journal of Economic Theory. [9] Jackson, M. O. and A. Wolinsky (1996) “A Strategic Model of Social and Economic Networks,” Journal of Economic Theory 71, pp. 44-74. [10] Kamat, S. and F. H. Page, Jr. “Computing Farsighted Stable Sets,” typescript, University of Alabama. [11] Page, Jr., F. H. and S. Kamat (2003) “Farsighted Stability in Network Formation.” In: Demange, G. and M. H. Wooders. (eds.) Group Formation in Economics: Networks, Clubs, and Coalitions. Cambridge University Press, forthcoming. [12] Page, Jr., F. H., M. H. Wooders and S. Kamat (2001) “Networks and Farsighted Stability,” Warwick Economic Research Papers, No 621, University of Warwick, forthcoming in the Journal of Economic Theory. [13] Watts, A. (2001) “A Dynamic Model of Network Formation,” Games and Economic Behavior, 34, pp. 331-341. [14] Watts, A. (2002) “Non-myopic Formation of Circle Networks,” Economic Letters 74, pp. 277-282.
URI:	http://wrap.warwick.ac.uk/id/eprint/1486

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