Nash Networks with Heterogeneous Agents

Hans Haller and Sudipta Sarangi

No 337, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: A non-cooperative model of network formation is developed. Agents form links with others based on the cost of the link and its assessed benefit. Link formation is one-sided, i.e., agents can initiate links with other agents with- out their consent, provided the agent forming the link makes the appropriate investment. Information flw is two-way. The model builds on the work of Bala and Goyal, but allows for agent heterogeneity. Whereas they permit links to fail with a certain common probability, in our model the probability of failure can be different for different links. We investigate Nash networks that exhibit connectedness and super-connectedness. We provide an explicit characterization of certain star networks. Efficiency and Pareto-optimality issues are discussed through examples. We explore alternative model specifications to address potential shortcomings.

JEL-codes: D82 D83 (search for similar items in EconPapers)
Pages: 28 p.
Date: 2003
New Economics Papers: this item is included in nep-cdm and nep-gth
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Citations: View citations in EconPapers (21)

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Working Paper: Nash Networks with Heterogeneous Agents (2003)
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