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Networks and Farsighted Stability

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  • Kamat, Samir

Abstract

The main contribution of this paper is to provide a framework in which the notion of farsighted stability for games, introduced by Chwe (1994), can be applied to directed networks. In particular, we introduce the notion of a supernetwork. A supernetwork is made up of a collection of directed networks (the nodes) and uniquely represents (via the arcs connecting the nodes) agent preferences and the rules governing network formation. By reformulating Chwe’s basic result on the nonemptiness of farsightedly stable sets, we show that for any supernetwork (i.e., for any collection of directed networks and any collection of rules governing network formation), there exists a farsightedly stable directed network. We also introduce the notion of a Nash network relative to a given supernetwork, as well as the notions of symmetric, nonsimultaneous, and decomposable supernetworks. To illustrate the utility of our framework, we present several examples of supernetworks, compute the farsightedly stable networks, and the Nash networks.

Suggested Citation

  • Kamat, Samir, 2002. "Networks and Farsighted Stability," Economic Research Papers 269473, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269473
    DOI: 10.22004/ag.econ.269473
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    References listed on IDEAS

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    1. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
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    Cited by:

    1. Gilles, R.P. & Sarangi, S., 2003. "The Role of Trust in Costly Network Formation," Discussion Paper 2003-53, Tilburg University, Center for Economic Research.

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