Farsighted network formation

Bhaskar Dutta, Sayantan Ghosal, Debraj Ray

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper studies a model of dynamic network formation when individuals are farsighted: players evaluate the desirability of a "current" move in terms of its consequences on the entire discounted stream of payoffs. We define a concept of equilibrium which takes into account farsighted behavior of agents and allows for limited cooperation amongst agents. We show that an equilibrium process of network formation exists. We also show that there are valuation structures in which no equilibrium strategy profile can sustain efficient networks. We then provide sufficient conditions under which the equilibrium process will yield efficient outcomes.

    Original languageEnglish (US)
    Pages (from-to)143-164
    Number of pages22
    JournalJournal of Economic Theory
    Volume122
    Issue number2
    DOIs
    StatePublished - Jun 2005

    Keywords

    • Efficiency
    • Equilibrium
    • Farsighted
    • Formation
    • Networks

    ASJC Scopus subject areas

    • Economics and Econometrics

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