Networks as Public Infrastructure: Externalities, Efficiency, and Implementation

First a non-cooperative model of network formation is investigated where link formation is one-sided and information flow is two-way. For that model, the relationship between different notions of efficient networks is studied: Pareto optimal networks on the one hand and welfare maximizing networks on the other hand. Strategic network formation is compared with funding schemes for public goods. Second, we extend the model and review earlier findings how a pre-existing network affects existence of Nash equilibria and efficiency of Nash equilibrium outcomes of the strategic network formation game: It can foster or prohibit existence of Nash equilibria. It can improve or worsen equilibrium welfare. Finally, we treat the pre-existing network as public infrastructure and design and analyze a subscription game for the public provision of that infrastructure.