Reciprocal Equilibria in Link Formation Games

Hannu Salonen
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Hannu Salonen: Department of Economics, University of Turku

No 89, Discussion Papers from Aboa Centre for Economics

Abstract: We study non-cooperative link formation games in which players have to decide how much to invest in relationships with other players. A link between two players is formed, if and only if both make a positive investment. The cost of forming a link can be interpreted as the opportunity cost of privacy. We analyze the existence of pure strategy equilibria and the resulting network structures with tractable specifications of utility functions. Sufficient conditions for the existence of reciprocal equilibria are given and the corresponding network structure is analyzed. Pareto optimal and strongly stable network structures are studied. It turns out that such networks are often complete.

Keywords: link formation games; reciprocal equilibrium; complete network (search for similar items in EconPapers)
JEL-codes: C72 D43 (search for similar items in EconPapers)
Pages: 24
Date: 2014-03
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Reciprocal Equilibria in Link Formation Games (2015)
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