A Sensitive Flexible Network Approach

This paper takes an axiomatic approach to find rules for allocating the value of a network when the externalities generated across components are identifiable. Two new, and different, allocation rules are defined and characterized in this context. The first one is an extension of the player-based flexible-network allocation rule (Jackson (2005)). The second one follows the flexible network approach from a component-wise point of view, where the notion of network flexibility is adjusted with a flavor of core stability. Furthermore, two other allocation rules are proposed by relaxing the axiom of equal treatment of vital players. These collapse into the player-based flexible-network allocation rule (Jackson (2005)) for zero-normalized value functions with no externalities across components.