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Characterization of efficient networks in a generalized connections model with endogenous link strength

Author

Listed:
  • Norma Olaizola

    (Universidad del País Vasco)

  • Federico Valenciano

    (Universidad del País Vasco)

Abstract

We consider a natural generalization of Jackson and Wolinsky’s (J Econ Theory 71:44–74, 1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly non-empty efficient networks, in the sense of maximizing the aggregate profit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.

Suggested Citation

  • Norma Olaizola & Federico Valenciano, 2020. "Characterization of efficient networks in a generalized connections model with endogenous link strength," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 11(3), pages 341-367, September.
    • Handle: RePEc:spr:series:v:11:y:2020:i:3:d:10.1007_s13209-020-00212-6
    DOI: 10.1007/s13209-020-00212-6
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    Cited by:

    1. Olaizola, By Norma & Valenciano, Federico, 2021. "Efficiency and stability in the connections model with heterogeneous nodes," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 490-503.
    2. Olaizola, Norma & Valenciano, Federico, 2020. "A connections model with decreasing returns link-formation technology," MPRA Paper 107585, University Library of Munich, Germany.
    3. Norma Olaizola & Federico Valenciano, 2023. "A connections model with decreasing returns link-formation technology," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 14(1), pages 31-61, March.

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    More about this item

    Keywords

    Network formation; Connections model; Nested split graph; Efficiency;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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