Formation of Stable Strategic Networks with Desired Topologies

Swapnil Dhamal and Y. Narahari

Studies in Microeconomics, 2015, vol. 3, issue 2, 158-213

Abstract: Abstract Many real-world networks, such as social networks, consist of strategic agents. The topology of these networks often plays a crucial role in determining the ease and speed with which certain information-driven tasks can be accomplished. Consequently, growing a stable network of a certain desired topology is of interest. Motivated by this, we study the following important problem: Given a certain desired topology, under what conditions would best response link alteration strategies adopted by strategic agents lead to formation of a stable network having the given topology and no other topology. This problem is the inverse of the classical network formation problem where we are concerned with determining stable topologies, given the conditions on the network parameters. We study this interesting inverse problem by proposing (1) a recursive model of network formation and (2) a utility model that captures key determinants of network formation. Building upon these models, we explore relevant topologies such as star graph complete graph, bipartite Turán graph, and multiple stars with interconnected centres. We derive a set of sufficient conditions under which these topologies uniquely emerge, study their social welfare properties and investigate the effects of deviating from the derived conditions.

Keywords: Strategic networks; Network formation; social welfare; game theory; pairwise stability; network topology; graph edit distance (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:miceco:v:3:y:2015:i:2:p:158-213

DOI: 10.1177/2321022215588873

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