The computation of pairwise stable networks

P. Jean-Jacques Herings and Yang Zhan

No 4, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: One of the most important stability concepts for network formation is pairwise stability. We develop a homotopy algorithm that is effective in computing pairwise stable networks for a generic network formation problem. To do so, we reformulate the concept of pairwise stability as a Nash equilibrium of a non-cooperative game played by the links in the network and adapt the linear tracing procedure for non-cooperative games to the network formation problem. As a by-product of our main result, we obtain that the number of pairwise stable networks is generically odd. We apply the algorithm to the connections model.

Date: 2021-01-26
New Economics Papers: this item is included in nep-gth and nep-net
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2021004

DOI: 10.26481/umagsb.2021004

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