Bloch, Francis and Dutta, Bhaskar (2008) Communication networks with endogenous link strength. Games and Economic Behavior, Vol.66 (No.1). pp. 39-56. doi:10.1016/j.geb.2008.03.007

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Abstract

This paper analyzes the formation of networks when players choose how much to invest in each relationship. We suppose that players have a fixed endowment that they can allocate across links, and in the baseline model, suppose that link strength is an additively separable and convex function of individual investments, and that agents use the path which maximizes the product of link strengths. We show that both the stable and efficient network architectures are stars. However, the investments of the hub may differ in stable and efficient networks. Under alternative assumptions on the investment technology and the reliability measure, other network architectures can emerge as efficient and stable.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HM Sociology
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Social networks -- Economic aspects, Game theory, Endogenous growth (Economics)
Journal or Publication Title:	Games and Economic Behavior
Publisher:	Elsevier
ISSN:	0899-8256
Official Date:	11 April 2008
Dates:	Date Event 11 April 2008 Published
Volume:	Vol.66
Number:	No.1
Number of Pages:	18
Page Range:	pp. 39-56
DOI:	10.1016/j.geb.2008.03.007
Status:	Peer Reviewed
Access rights to Published version:	Open Access

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