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Learning, Network Formation and Coordination

Sanjeev Goyal and Vega-Redondo, F.

No EI 9954-/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In many economic and social contexts, individual players choose their partners and also decide on a mode of behavior in interactions with these partners. This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by investing in costly pair-wise links. We show that individual efforts to balance the costs and benefits of links sharply restrict the range of stable interaction architectures; equilibrium networks are either complete or have the star architecture. Moreover, the process of network formation has powerful effects on individual behavior: if costs of forming links are low then players coordinate on the risk-dominant action, while if costs of forming links are high then they coordinate on the efficient action.

Keywords: coordination; learning; network formation (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2000-11-10
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https://repub.eur.nl/pub/6931/2000-0931.pdf (application/pdf)

Related works:
Working Paper: LEARNING, NETWORK FORMATION AND COORDINATION (2001) Downloads
Working Paper: Learning, Network Formation and Coordination (2000) Downloads
Working Paper: Learning, Network Formation and Coordination (2000) Downloads
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