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A Model of Myerson-Nash Equilibria in Networks

In: Artificial Economics

Author

Listed:
  • Paolo Pin

    (Dipartimento di Economia - Universitáa Ca’ Foscari di Venezia)

Abstract

Summary The paper studies network formation in undirected graphs. We assume a two-stage game: agents propose connections that if realized have a fixed cost; then, given the obtained graph and its exogenous surplus (the value function), they bargain on the split. We claim that, when the surplus from connections is super-additive, the bargaining process can be solved with the Myerson Value allocation rule, an adaptation of Shapley’s to graphs. This will lead to an (only theoretically, not in computations) easy characterisation of equilibria, refining the notion of pairwise stability. We then focus our attention on the heuristical analysis of a tractable case. We run simulations, starting from different initial conditions, in order to qualitatively characterize alternative possible equilibria. For part of this last purpose we are using the simulated annealing approach, with theoretical justification for its adoption.

Suggested Citation

  • Paolo Pin, 2006. "A Model of Myerson-Nash Equilibria in Networks," Lecture Notes in Economics and Mathematical Systems, in: M. Beckmann & H. P. Künzi & G. Fandel & W. Trockel & A. Basile & A. Drexl & H. Dawid & K. Inderfurth (ed.), Artificial Economics, pages 175-188, Springer.
    • Handle: RePEc:spr:lnechp:978-3-540-28547-2_15
    DOI: 10.1007/3-540-28547-4_15
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    Cited by:

    1. Pin, Paolo, 2011. "Eight degrees of separation," Research in Economics, Elsevier, vol. 65(3), pages 259-270, September.

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