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Characterization of efficient networks in a generalized connections model with endogenous link strength

María Norma Olaizola Ortega and Federico Valenciano ()

No Ikerlanak;2019-112, IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: We consider a natural generalization of Jackson and Wolinsky s (1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly nonempty efficient networks, in the sense of maximizing the aggregate proffit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.

Keywords: network; formation; connecions; model; nested; split; graph; efficiency (search for similar items in EconPapers)
JEL-codes: A14 C7 D85 (search for similar items in EconPapers)
Date: 2019-05-09
New Economics Papers: this item is included in nep-cdm, 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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