Communication Network Formation with Link Specificity and Value Transferability

FCN Working Paper No. 15/2010

41 Pages Posted: 25 Mar 2011

See all articles by Marjolein J. W. Harmsen - van Hout

Marjolein J. W. Harmsen - van Hout

Lehrstuhl für Wirtschaftswissenschaften, insb. Energieökonomik; Institute for Future Energy Consumer Needs and Behavior (FCN); E.ON Energy Research Center; RWTH Aachen

P. Jean-Jacques Herings

Tilburg University

Benedict G. C. Dellaert

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2010

Abstract

We propose a model on strategic formation of communication networks with (i) link specificity: the more direct links somebody maintains, the less she can specify her attention per link, the lower her links’ value, while this negative externality was previously ignored in the communication context, and (ii) value transferability via indirect links for informational but not for social value from communication, while this positive externality was modeled uniformly before. Assuming only social value to isolate the impact of link specificity, the pairwise stable set includes many nonstandard networks under high or particular combinations of fully connected components under low link specificity. Allowing for social and informational value, the joint effect of link specificity and value transferability reduces the stable set to certain fragmented networks under high or the complete network under low link specificity. These extremes are beneficial for efficiency, whereas quite inefficient networks may arise for intermediate link specificity.

Keywords: Bilateral communication links, Link specificity, Value transferability, Social vs. informational value, Strategic network formation

JEL Classification: A14, C79, D85, M31

Suggested Citation

Harmsen - van Hout, Marjolein J. W. and Herings, P. Jean-Jacques and Dellaert, Benedict G. C., Communication Network Formation with Link Specificity and Value Transferability (November 1, 2010). FCN Working Paper No. 15/2010 , Available at SSRN: https://ssrn.com/abstract=1788909 or http://dx.doi.org/10.2139/ssrn.1788909

Marjolein J. W. Harmsen - van Hout (Contact Author)

Lehrstuhl für Wirtschaftswissenschaften, insb. Energieökonomik; Institute for Future Energy Consumer Needs and Behavior (FCN); E.ON Energy Research Center; RWTH Aachen ( email )

Aachen
Germany

HOME PAGE: http://www.eonerc.rwth-aachen.de/aw/cms/website/themen/~shg/fcn/lang/en/

P. Jean-Jacques Herings

Tilburg University ( email )

Department of Econometrics and Operations Research
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4668797 (Phone)
5000 LE (Fax)

HOME PAGE: http://https://sites.google.com/view/jean-jacques-herings/home

Benedict G. C. Dellaert

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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