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Network Formation And Coordination: Bargaining The Division Of Link Costs

Author

Listed:
  • Miguel A. Meléndez-Jiménez

    (Universidad de Alicante)

Abstract

This paper presents a model of network formation with costly links. We endogenize the amount of cost born by each player involved in a bilateral link by considering that these shares result from bargaining. We analyze this feature in a context of coordination games. We show that, if the cost of the link is not too high, the complete network arises and players coordinate on the same action. If this cost is higher than the risk-dominance premium the efficient action is selected; instead, if it is lower, the risk-dominant action prevails.

Suggested Citation

  • Miguel A. Meléndez-Jiménez, 2002. "Network Formation And Coordination: Bargaining The Division Of Link Costs," Working Papers. Serie AD 2002-27, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2002-27
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2002-27.pdf
    File Function: Fisrt version / Primera version, 2002
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    References listed on IDEAS

    as
    1. Sanjeev Goyal & Fernando Vega-Redondo, 2000. "Learning, Network Formation and Coordination," Tinbergen Institute Discussion Papers 00-093/1, Tinbergen Institute.
    2. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    3. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    5. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    6. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Andrea Galeotti & Miguel Meléndez, 2004. "Exploitation and Cooperation in Networks," Tinbergen Institute Discussion Papers 04-076/1, Tinbergen Institute.

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    More about this item

    Keywords

    Coordination; Nash bargaining solution; Markov process;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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