Expected Fair Allocation in Farsighted Network Formation

Noemí Navarro

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

Abstract: I consider cooperation situations where players have network relations. Networks evolve according to a stationary transition probability matrix and at each moment in time players receive payoffs from a stationary allocation rule. Players discount the future by a common factor. The pair formed by an allocation rule and a transition probability matrix is called expected fair if for every link in the network both participants gain, marginally, and in discounted, expected terms, the same from it; and it is called a pairwise network formation procedure if the probability that a link is created (or eliminated) is positive if the discounted, expected gains to its two participants are positive too. The main result is the existence, for the discount factor small enough, of an expected fair and pairwise network formation procedure where the allocation rule is component balanced, meaning it distributes the total value of any maximal connected subnetwork among its participants. This existence result holds for all discount factors when the pairwise network formation procedure is restricted. I finally provide some comparison with previous models of farsighted network formation.

Keywords: Myerson value; allocation rules; Markov chain; strategic network formation; farsighted stability (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Expected fair allocation in farsighted network formation (2014)
Working Paper: Expected fair allocation in farsighted network formation (2013)
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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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