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Nash Networks with Heterogeneous Agents

A non-cooperative model of network formation is developed. Agents form links with others based on the cost of the link and its assessed benefit. Link formation is one-sided, i.e., agents can initiate links with other agents with- out their consent, provided the agent forming the link makes the appropriate investment. Information flw is two-way. The model builds on the work of Bala and Goyal, but allows for agent heterogeneity. Whereas they permit links to fail with a certain common probability, in our model the probability of failure can be different for different links. We investigate Nash networks that exhibit connectedness and super-connectedness. We provide an explicit characterization of certain star networks. Efficiency and Pareto-optimality issues are discussed through examples. We explore alternative model specifications to address potential shortcomings.
Year of publication:
2003
Authors: Haller, Hans ; Sarangi, Sudipta
Institutions: DIW Berlin (Deutsches Institut für Wirtschaftsforschung)
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application/pdf
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Type of publication: Book / Working Paper
Language: English
Notes:
Number 337 28 pages long
Classification: D82 - Asymmetric and Private Information ; D83 - Search, Learning, Information and Knowledge
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