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Stable and Efficient Networks with Farsighted Players: the Largest Consistent Set

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  • A Bhattacharya

Abstract

In this paper we study strategic formation of bilateral networks with farsighted players in the classic framework of Jackson and Wolinsky (1996). We use the largest consistent set (LCS)(Chwe (1994)) as the solution concept for stability. We show that there exists a value function such that for every component balanced and anonymous allocation rule, the corresponding LCS does not contain any strongly efficient network. Using Pareto efficiency, a weaker concept of efficiency, we get a more positive result. However, then also, at least one environment of networks (with a component balanced and anonymous allocation rule) exists for which the largest consistent set does not contain any Pareto efficient network. These confirm that the well-known problem of the incompatibility between the set of stable networks and the set of efficient networks persists even in the environment with farsighted players. Next we study some possibilities of resolving this incompatibility.

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  • A Bhattacharya, "undated". "Stable and Efficient Networks with Farsighted Players: the Largest Consistent Set," Discussion Papers 09/34, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:09/34
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    Cited by:

    1. Béal, Sylvain & Durieu, Jacques & Solal, Philippe, 2008. "Farsighted coalitional stability in TU-games," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 303-313, November.
    2. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent, 2009. "Farsightedly stable networks," Games and Economic Behavior, Elsevier, vol. 67(2), pages 526-541, November.
    3. Kimya, Mert, 2020. "Equilibrium coalitional behavior," Theoretical Economics, Econometric Society, vol. 15(2), May.
    4. Mariya Teteryatnikova, 2015. "Cautious Farsighted Stability in Network Formation Games with Streams of Payoffs," Vienna Economics Papers 1509, University of Vienna, Department of Economics.
    5. Mariya Teteryatnikova, 2021. "Cautious farsighted stability in network formation games with streams of payoffs," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(4), pages 829-865, December.

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    More about this item

    Keywords

    networks; farsighted; largest consistent set;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D20 - Microeconomics - - Production and Organizations - - - General

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