Dynamic farsighted networks with endogenous opportunities of link formation

James Lake

No 1406, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: I present a three player dynamic network theoretic model where players are farsighted and asymmetric. Unlike the previous literature that imposes an exogenous protocol governing the order of negotiations, I allow the identity of the players who form a link in a given period to depend endogenously on player characteristics. Importantly, I show how this can give different predictions regarding attainment of the complete network relative to models with an exogenous protocol. Regardless of whether the complete network is efficient, a key dynamic trade off drives whether the complete network is attained in my model. A pair of players (insiders) may form a link with each other but, even though link formation is always myopically beneficial, each insider then refuses subsequent link formation with the third player (outsider) because the eventual attainment of the complete network makes each insider worse off relative to the insider-outsider network.

Keywords: networks; dynamic; farsighted; efficiency (search for similar items in EconPapers)
JEL-codes: C70 C71 C73 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-mic and nep-net
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