NETWORK FORMATION AND COORDINATION: BARGAINING THE DIVISION OF LINK COSTS

Miguel Meléndez-Jiménez ()

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper presents a model of network formation with costly links. We endogenize the amount of cost born by each player involved in a bilateral link by considering that these shares result from bargaining. We analyze this feature in a context of coordination games. We show that, if the cost of the link is not too high, the complete network arises and players coordinate on the same action. If this cost is higher than the risk-dominance premium the efficient action is selected; instead, if it is lower, the risk-dominant action prevails.

Keywords: Coordination; Nash bargaining solution; Markov process (search for similar items in EconPapers)
JEL-codes: C72 C73 C78 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2002-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2002-27

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