Network Formation with Heterogenous Agents

Juan M.C. Larrosa () and Fernando Tohmé ()

Microeconomics from EconWPA

Abstract: The present paper analyzes a network formation problem, mainly based on the framework presented in Bala and Goyal (2000). We depart from their assumptions in two crucial aspects. On one hand, we assume that connecting to an agent pays of not only for the number of connections that the agent can provide but also for her intrinsic value. Since the values of the agents (which represent the amounts of information held by the agents) difer from agent to agent, we are introducing heterogeneity in the framework. On the other hand, we assume that each path connecting two agents has an associated cost which is the sum of the number of edges it includes. We obtain as a result that the only Nash structure is the circle network, which emerges as a robust and optimal structure that maximizes the benefits of the interactions among agents while at the same time it minimizes the costs of network formation.

Keywords: network; game theory; heterogeneity; circle network (search for similar items in EconPapers)
JEL-codes: D20 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 2003-01-18
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 14 ; figures: included. 14 pages, pdf, prepared from dvips - figures included
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0301002

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