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Networks and Favor Exchange Norms under Stochastic Costs

Seungmoon Choi, Virginie Masson (), Angus Moore and Mandar Oak ()

No 2013-04, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: We develop a model of favor exchange in a network setting where the cost of performing favors is stochastic. For any given favor exchange norm, we allow for the endogenous determination of the network structure via a link deletion game. We characterize the set of stable as well as equilibrium systems and show that these sets are identical. The most efficient network topology and favor exchange convention are generically shown to be not supported as equilibrium of the link deletion game. Our model provides a useful framework for understanding the topology of favor exchange networks. While the model exhibits positive externalities, its properties differ from the "information transmission" model à la Jackson and Wolinsky, as evidenced by the emergence of regular networks as opposed to star networks as stable and efficient network structures.

JEL-codes: C78 D85 L14 Z13 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-04
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net, nep-ore and nep-soc
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