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Dynamic farsighted networks with endogenous opportunities of link formation

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  • James Lake

    (Southern Methodist University)

Abstract

I present a three player dynamic network theoretic model where players are farsighted and asymmetric. Unlike the previous literature that imposes an exogenous protocol governing the order of negotiations, I allow the identity of the players who form a link in a given period to depend endogenously on player characteristics. Importantly, I show how this can give different predictions regarding attainment of the complete network relative to models with an exogenous protocol. Regardless of whether the complete network is efficient, a key dynamic trade off drives whether the complete network is attained in my model. A pair of players (insiders) may form a link with each other but, even though link formation is always myopically beneficial, each insider then refuses subsequent link formation with the third player (outsider) because the eventual attainment of the complete network makes each insider worse off relative to the insider-outsider network.

Suggested Citation

  • James Lake, 2014. "Dynamic farsighted networks with endogenous opportunities of link formation," Departmental Working Papers 1406, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:1406
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    More about this item

    Keywords

    networks; dynamic; farsighted; efficiency;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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