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The Formation of Networks with Transfers Among Players

47 Pages Posted: 11 Jun 2004  

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute; Canadian Institute for Advanced Research (CIFAR)

Francis Bloch

French National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM); National Center for Scientific Research (CNRS)

Date Written: May 2004

Abstract

We examine the formation of networks among a set of players whose payoffs depend on the structure of the network. We focus on games where players may bargain by promising or demanding transfer payments when forming links. We examine several variations of the transfer/bargaining aspect of link formation. One aspect is whether players can only make and receive transfers to other players to whom they are directly linked, or whether they can also subsidize links that they are not directly involved in. Another aspect is whether or not transfers related to a given link can be made contingent on the full resulting network or only on the link itself. A final aspect is whether or not players can pay other players to refrain from forming links. We characterize the networks that are supported under these variations and show how each of the above aspects is related either to accounting for a specific type of externality, or to dealing with the combinatorial nature of network payoffs.

Keywords: Networks, Network games, Network formation, Game theory, Efficient networks, Side payments, Transfers, Bargaining, Externalities

JEL Classification: A14, C71, C72

Suggested Citation

Jackson, Matthew O. and Bloch, Francis, The Formation of Networks with Transfers Among Players (May 2004). FEEM Working Paper No. 80.04. Available at SSRN: https://ssrn.com/abstract=546645 or http://dx.doi.org/10.2139/ssrn.546645

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)

HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Francis Bloch

French National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France

National Center for Scientific Research (CNRS) ( email )

54, boulevard Raspail
Paris, 75006
France

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