The effect of sequentiality and heterogeneity in network formation games

Liza Charroin ()

No 1629, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In the benchmark model of Bala and Goyal (2000) on network formation, the equilibrium network is asymmetric and unfair as agents have different payoffs. While they are prominent in reality, asymmetric networks do not emerge in the lab mainly because of fairness concerns. We extend this model with a sequential linking decision process to ease coordination and with heterogeneous agents. Heterogeneity is introduced with the presence of a special agent who has either a higher monetary value or a different status. The equilibrium is asymmetric and unfair. Our experimental results show that thanks to sequentiality and fairness concerns, individuals coordinate on fair and efficient networks in homogeneous settings. Heterogeneity impacts the network formation process by increasing the asymmetry of networks but does not decrease the level of fairness nor efficiency

Keywords: Network formation; sequentiality; heterogeneity; fairness; asymmetry (search for similar items in EconPapers)
JEL-codes: C72 C92 D85 Z13 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth, nep-mic, nep-net and nep-ore
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Working Paper: The effect of sequentiality and heterogeneity in network formation games (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1629

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