The Role of Trust in Costly Network Formation

CentER Discussion Paper No. 2003-53

36 Pages Posted: 16 Jul 2004

See all articles by Robert P. Gilles

Robert P. Gilles

Queen's University Management School

Sudipta Sarangi

Virginia Polytechnic Institute & State University

Date Written: 2003

Abstract

We consider game theoretic models of social network formation. In this paper, we limit our investigation to game theoretic models of network formation that are based on individual actions only. Our approach is based on three simple and realistic principles: (1) Link formation is a binary process of consent. (2) Link formation is costly. (3) The class of network payo functions should be as general as possible. We provide characterizations of stable networks under the hypothesis of mutual consent in the cases of two-sided and one-sided link formation costs. Furthermore, we introduce a new equilibrium concept based on a limited, realistic form of farsightedness or trust in network formation.

Keywords: Trust, social networks, network formation, individual stability, pairwise stability

Suggested Citation

Gilles, Robert P. and Sarangi, Sudipta, The Role of Trust in Costly Network Formation (2003). CentER Discussion Paper No. 2003-53, Available at SSRN: https://ssrn.com/abstract=556065 or http://dx.doi.org/10.2139/ssrn.556065

Robert P. Gilles (Contact Author)

Queen's University Management School ( email )

25 University Sq
Belfast, Northern Ireland BT7 1NN
United Kingdom

Sudipta Sarangi

Virginia Polytechnic Institute & State University ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

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