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Unilateral vs. Bilateral link-formation: Bridging the gap

Norma Olaizola () and Federico Valenciano ()

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

Abstract: We provide a model that bridges the gap between two benchmark models of strategic network formation: Jackson and Wolinsky' s model based on bilateral formation of links, and Bala and Goyal's two-way fl ow model, where links can be unilaterally formed. In the model introduced and studied here a link can be created unilaterally. When it is only supported by one of the two players the fl ow through the link suffers a certain decay, but when it is supported by both the fl ow runs without friction. When the decay in links supported by only one player is maximal (i.e. there is no flow) we have Jackson and Wolinsky 's connections model without decay, while when flow in such links is perfect we have Bala and Goyal' s two-way flow model. We study Nash, strict Nash and pairwise stability for the intermediate models. Efficiency and dynamics are also examined.

Keywords: network formation; unilateral link-formation; bilateral link-formation; stability; efficiency; dynamics (search for similar items in EconPapers)
Date: 2014-05-28
New Economics Papers: this item is included in nep-gth, nep-mic and nep-net
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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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