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Nash Networks with Heterogeneous Agents

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  • Hans Haller
  • Sudipta Sarangi

Abstract

A non-cooperative model of network formation is developed. Agents form links with others based on the cost of the link and its assessed benefit. Link formation is one-sided, i.e., agents can initiate links with other agents with- out their consent, provided the agent forming the link makes the appropriate investment. Information flw is two-way. The model builds on the work of Bala and Goyal, but allows for agent heterogeneity. Whereas they permit links to fail with a certain common probability, in our model the probability of failure can be different for different links. We investigate Nash networks that exhibit connectedness and super-connectedness. We provide an explicit characterization of certain star networks. Efficiency and Pareto-optimality issues are discussed through examples. We explore alternative model specifications to address potential shortcomings.

Suggested Citation

  • Hans Haller & Sudipta Sarangi, 2003. "Nash Networks with Heterogeneous Agents," Discussion Papers of DIW Berlin 337, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp337
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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.
    2. Rajgopal Kannan & Lydia Ray & Sudipta Sarangi, 2007. "The structure of information networks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 119-134, January.
    3. Jun, Tackseung & Kim, Jeong-Yoo, 2007. "Connectivity, stability and efficiency in a network as an information flow," Mathematical Social Sciences, Elsevier, vol. 53(3), pages 314-331, May.
    4. Alessio D'Ignazio & Emanuele Giovannetti, 2006. "From Exogenous To Endogenous Economic Networks: Internet Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 757-796, December.
    5. Michael Kosfeld, "undated". "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
    6. Yangbo Song & Mihaela Schaar, 2015. "Dynamic network formation with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 301-331, June.
    7. Lasse Kliemann, 2011. "The Price of Anarchy for Network Formation in an Adversary Model," Games, MDPI, vol. 2(3), pages 1-31, August.
    8. Pramila Krishnan & Emanuela Sciubba, 2009. "Links and Architecture in Village Networks," Economic Journal, Royal Economic Society, vol. 119(537), pages 917-949, April.
    9. Harmsen - van Hout, M.J.W. & Herings, P.J.J. & Dellaert, B.G.C., 2006. "The structure of online consumer communication networks," Research Memorandum 028, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    10. Pascal Billand & Christophe Bravard & Sudipta Sarangi, 2008. "Existence of Nash networks in one-way flow models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 491-507, December.
    11. Rajgopal Kannan & Sudipta Sarangi & S. S. Iyengar, 2002. "Strategic Path Reliability in Information Networks," Discussion Papers of DIW Berlin 298, DIW Berlin, German Institute for Economic Research.
    12. Sudipta Sarangi & Pascal Billand & Christophe Bravard, 2007. "Existence of Nash Networks in One-Way Flow Models (Revised Version of LSU Working Paper 2006-05)," Departmental Working Papers 2007-02, Department of Economics, Louisiana State University.
    13. Lasse Kliemann & Elmira Shirazi Sheykhdarabadi & Anand Srivastav, 2017. "Swap Equilibria under Link and Vertex Destruction," Games, MDPI, vol. 8(1), pages 1-18, February.
    14. Krishnan, P. & Sciubba, E., 2004. "Links and Architecture in Village Networks (previously: Endogenous Network Formation and Informal Institutions in Village Economies)," Cambridge Working Papers in Economics 0462, Faculty of Economics, University of Cambridge.
    15. Sudipta Sarangi & Pascal Billand & Christophe Bravard, 2006. "Heterogeneity in Nash Networks," Departmental Working Papers 2006-18, Department of Economics, Louisiana State University.
    16. Billand, Pascal & Bravard, Christophe, 2005. "A note on the characterization of Nash networks," Mathematical Social Sciences, Elsevier, vol. 49(3), pages 355-365, May.
    17. Gilles, Robert P. & Chakrabarti, Subhadip & Sarangi, Sudipta, 2012. "Nash equilibria of network formation games under consent," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 159-165.
    18. Jacques Durieu & Hans Haller & Philippe Solal, 2011. "Nonspecific Networking," Games, MDPI, vol. 2(1), pages 1-27, February.
    19. Haller, Hans & Sarangi, Sudipta, 2005. "Nash networks with heterogeneous links," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 181-201, September.
    20. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, University Library of Munich, Germany.
    21. Anshelevich, Elliot & Shepherd, F.B. & Wilfong, Gordon, 2011. "Strategic network formation through peering and service agreements," Games and Economic Behavior, Elsevier, vol. 73(1), pages 17-38, September.
    22. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    23. D'Ignazio, A. & Giovannetti, E., 2004. "From Exogenous to Endogenous Networks: Internet Applications," Cambridge Working Papers in Economics 0445, Faculty of Economics, University of Cambridge.

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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