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Efficient Partnership Formation in Networks

Francis Bloch (), Bhaskar Dutta and Mihai Manea
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Bhaskar Dutta: University of Warwick and Ashoka University
Mihai Manea: Stanford University

CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA

Abstract: We analyze the formation of partnerships in social networks. Players need favors at random times and ask their neighbors in the network to form exclusive long-term partnerships that guarantee reciprocal favor exchange. Refusing to provide a favor results in the automatic removal of the under lyinglink. When favors are costly, players agree to provide the first favor in a partnership only if they otherwise face the risk of eventual solitude. In equilibrium,the players essential for realizing every maximum matching can avoid this risk and enjoy higher payoffs than in essential players. Although the search for partners is decentralized and reflects local incentives, the strength of essential players drives efficient partnership formation in everynetwork. When favors are costless, players enter partnerships at any opportunity and every maximal matching can emerge in equilibrium.In this case,efficiency is limited to special linking patterns : complete and complete bipartite networks, locally balanced biprtit enetworks with positive surplus, and factor-critical networks. JEL classification numbers: D85 ; C78

Keywords: networks; partnerships; matchings; efficiency; decentralizedmarkets; favor exchange; completely elementary networks; locally balanced networks (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-soc
Date: 2018
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Journal Article: Efficient partnership formation in networks (Forthcoming) Downloads
Working Paper: Efficient Partnership Formation In Networks (2018) Downloads
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