On the Tension Between Stability and Efficiency in Two-Way Flow Network with Small Decay

Banchongsan Charoensook
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Banchongsan Charoensook: Keimyung University, Daegu, South Korea

Economics and Applied Informatics, 2025, issue 1, 162-169

Abstract: The tension between stability and efficiency in network formation models refers to a common finding in the literature of social networks: equilibrium networks and efficient networks often exhibit substantially different characteristics. In this note, I show that this tension can be partially reconciled in the two-way flow model of network formation with partner heterogeneity by introducing a small degree of information decay. This result extends a similar finding established for homogeneous agents in Charoensook (2025). Thus, this note contributes to the literature by demonstrating that the reconciliation of stability and efficiency through a small decay assumption is not confined to models with agent homogeneity but also holds in more general network settings.

Keywords: Network Formation; Nash Network; Two-way Flow Network; Agent Heterogeneity; Efficient Network (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ddj:fseeai:y:2025:i:1:p:162-169

DOI: 10.35219/eai15840409496

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