On Efficiency and Stability in Two-Way Flow Network with Small Decay : A Note

Most literature in strategic network formation shows that there is a substantial tension between stability and efficiency. In this note, I show that such is not the case in the two-way flow model with small decay studied by Bala and Goyal (2000a) and De Jaegher and Kamphorst (2015). Specifically, I show that every link receiver in a Nash network serves as an efficient transmitter of information. I also generalize this result to the case of player heterogeneity and then provide a fine-detail characterization of efficient networks