Implementation of Welfare Maximizing Networks

Jens Leth Hougaard () and Mich Tvede ()
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Jens Leth Hougaard: University of Copenhagen, DK-1958 Frederiksberg C, Denmark
Mich Tvede: School of Economics, University of Sheffield, Sheffield S1 4DT, UK

No 2025005, Working Papers from The University of Sheffield, Department of Economics

Abstract: We consider network formation. A set of locations can be connected in various network configurations. Every network has a cost and every agent has an individual value of every network. A planner aims at implementing a welfare maximizing network and allocating the resulting cost, but information is asymmetric: agents are fully informed and the planner is ignorant. Full implementation in Nash and strong Nash equilibria is studied. We show the correspondence consisting of welfare maximizing networks and individually rational cost allocations is implementable. We construct a minimal Nash implementable, welfare maximizing, and individually rational solution in the set of upper hemi-continuous and Nash implementable solutions. It is not possible to have full implementation single valued solutions such as the Shapley value.

Keywords: Networks; Welfare maximization; Nash Implementation; Strong Nash Implementation (search for similar items in EconPapers)
JEL-codes: C70 C72 D71 D85 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2025-05
New Economics Papers: this item is included in nep-gth, nep-mic and nep-net
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