Network Formation with Myopic and Farsighted Players

15 Pages Posted: 8 Dec 2018

See all articles by Chenghong Luo

Chenghong Luo

Catholic University of Louvain (UCL)

Ana Mauleon

Université Saint-Louis - Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Vincent Vannetelbosch

Catholic University of Louvain (UCL)

Date Written: June 2, 2018

Abstract

We study the formation of networks where myopic and farsighted individuals decide with whom they want to form a link, according to a distance-based utility function that weighs the costs and benefits of each connection. We propose the notion of myopic-farsighted stable set to determine the networks that emerge when some individuals are myopic while others are farsighted. A myopic-farsighted stable set is the set of networks satisfying internal and external stability with respect to the notion of myopic-farsighted improving path. In the case of a homogeneous population (either all myopic or all farsighted), a conflict between stability and efficiency is likely to arise. But, once the population becomes mixed, the conflict vanishes if there are enough farsighted individuals. In addition, we characterize the myopic-farsighted stable set for any utility function when all individuals are myopic.

Keywords: networks; stable sets; myopia; farsightedness; distance-based utility

JEL Classification: A14, C70, D20

Suggested Citation

Luo, Chenghong and Mauleon Echeverria, Ana Carmen and Vannetelbosch, Vincent, Network Formation with Myopic and Farsighted Players (June 2, 2018). Available at SSRN: https://ssrn.com/abstract=3298098 or http://dx.doi.org/10.2139/ssrn.3298098

Chenghong Luo

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Ana Carmen Mauleon Echeverria

Université Saint-Louis - Bruxelles ( email )

Brussels, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Vincent Vannetelbosch (Contact Author)

Catholic University of Louvain (UCL) ( email )

CORE, Voie du Roman Pays 34
Louvain-la-Neuve, 1348
Belgium

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