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Efficient Partnership Formation in Networks

Author

Listed:
  • Bloch, Francis

    (Université Paris 1 and Paris School of Economics)

  • Dutta, Bhaskar

    (University of Warwick and Ashoka University)

  • Manea, Mihai

    (Stanford University)

Abstract

We analyze the formation of partnerships in social networks. Players need favors at random times and ask their neighbors in the network to form exclusive long-term partnerships that guarantee reciprocal favor exchange. Refusing to provide a favor results in the automatic removal of the under lyinglink. When favors are costly, players agree to provide the first favor in a partnership only if they otherwise face the risk of eventual solitude. In equilibrium,the players essential for realizing every maximum matching can avoid this risk and enjoy higher payoffs than in essential players. Although the search for partners is decentralized and reflects local incentives, the strength of essential players drives efficient partnership formation in everynetwork. When favors are costless, players enter partnerships at any opportunity and every maximal matching can emerge in equilibrium.In this case,efficiency is limited to special linking patterns : complete and complete bipartite networks, locally balanced biprtit enetworks with positive surplus, and factor-critical networks. JEL classification numbers: D85 ; C78

Suggested Citation

  • Bloch, Francis & Dutta, Bhaskar & Manea, Mihai, 2018. "Efficient Partnership Formation in Networks," CRETA Online Discussion Paper Series 41, Centre for Research in Economic Theory and its Applications CRETA.
    • Handle: RePEc:wrk:wcreta:41
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/creta/papers/manage/creta41_-_bhaskar_dutta.pdf
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    References listed on IDEAS

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    Cited by:

    1. Zhiwei Cui & Yan-An Hwang & Ding-Cheng You, 2021. "Axiomatizations of the $$\beta $$ β and the score measures in networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(2), pages 399-418, June.
    2. Yazıcı, Ayşe, 2022. "Decentralized matching at senior-level: Stability and incentives," Journal of Mathematical Economics, Elsevier, vol. 101(C).
    3. Ayse Yazici, 2022. "Decentralized Matching at Senior-Level: Stability and Incentives," Working Papers 2022_01, Durham University Business School.
    4. Oguzhan Celebi, 2023. "Substitutability in Favor Exchange," Papers 2309.10749, arXiv.org.
    5. Alejandro Francetich, 2023. "When partner knows best: asymmetric expertise in partnerships," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(2), pages 363-399, June.

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    More about this item

    Keywords

    networks ; partnerships ; matchings ; efficiency ; decentralizedmarkets ; favor exchange ; completely elementary networks ; locally balanced networks;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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