The impact of liberalizing cost-saharing on basic models of network formation

María Norma Olaizola Ortega and Federico Valenciano

IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: This paper studies the impact of "liberalizing " the cost-sharing of links on some basic models of network formation. This is done in a setting where both doubly supported and singly supported links are possible, and which includes the two seminal models of network formation by Jackson and Wolinsky and Bala and Goyal as extreme cases. In this setting, the notion of pairwise stability is extended and it is proved that liberalizing cost-sharing for doubly supported links widens the range of values of the parameters where the efficient networks formed by such type of links are pairwise stable, while the range of values of the parameters where the efficient networks formed by singly supported links are pairwise stable shrinks, but the region where the latter are e¢ cient and pairwise stable remains the same.

Keywords: network formation; unilateral link-formation; bilateral link-formation; cost-sharing; efficiency; stability (search for similar items in EconPapers)
Date: 2015-09-12
New Economics Papers: this item is included in nep-gth and nep-net
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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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