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Network formation with decreasing marginal benefits of information

Kris De Jaegher and Jurjen Kamphorst ()

No 08-16, Working Papers from Utrecht School of Economics

Abstract: In the two-way flow connections model of the seminal paper by Bala and Goyal (2000a), the marginal benefit of obtaining the information of one more player is constant. However, it is plausible that the marginal benefit of such information is decreasing. This paper explores the consequences for the stability of networks of such decreasing marginal benefits. We start by characterizing the strict Nash networks for both the case of constant and the case of decreasing marginal benefits. Using this characterization, we next explore how the set of strict Nash networks differs for the two cases. The results and intuition tells us that long diameter networks have certain features which make them relatively more likely to be stable under decreasing marginal benefits of information as compared to short diameter networks.

Keywords: Network Formation; Concave Benefits; Two-Way Flow Model (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-gth, nep-net and nep-soc
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