Communication Networks with Endogenous Link Strength

Francis Bloch and Bhaskar Dutta

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper analyzes the formation of communication networks when players choose endogenously their investment on communication links. We consider two alternative de?nitions of network reliability ; product reliability, where the decay of information depends on the product of the strength of communication links, and min reliability where the speed of connection is a¤ected by the weakest communication link. When investments are separable, the architecture of the efficient network depends crucially on the shape of the transformation function linking investments to the quality of communication links. With increasing marginal returns to investment, the efficient network is a star ; with decreasing marginal returns, the con?ict between maximization of direct and indirect bene?ts prevents a complete characterization of efficient networks. However, with min reliability, the efficient network must be a tree. Furthermore, in the particular case of linear transformation functions, in an e¢ cient network, all links must have equal strength. When investments are perfect complements, the results change drastically : under product reliability, the efficient network must contain a cycle, and is in fact a circle for small societies. With min reliability, the e¢ cient network is either a circle or a line. As in classical models of network formation, e fficient networks may not be supported by private invesment decisions. We provide examples to show that the star may not be stable when the transformation functions is strictly convex. We also note that with perfect substitutes and perfect complements (when the e¢ cient network displays a very symmetric structure), the e¢ cient network can indeed be supported by private investments when the society is large.

Keywords: communication networks; network reliability (search for similar items in EconPapers)
JEL-codes: C70 D85 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Communication networks with endogenous link strength (2009)
Working Paper: Communication networks with endogeneous link strength (2008)
Working Paper: Communication Networks with Endogeneous Link Strength (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:723

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