Social Network Formation with Consent
CentER Discussion Paper No. 2004-70
26 Pages Posted: 5 Jan 2005
Date Written: July 2004
We investigate the equilibria of game theoretic models of network formation that are based on individual actions only. Our approach is grounded in three simple and realistic principles: (1) Link formation should be a binary process of consent. (2) Link formation should be costly. (3) The class of network payoff functions should be as general as possible.
It is accepted that these consent models have a very large number of equilibria. However, until now, no characterization of these equilibria has been established in the literature. We aim to fill this void and provide characterizations of stable networks or the cases of two-sided and one-sided link formation costs. Furthermore, we provide a comparison of Nash equilibria with potential maximizers for a certain specification.
Keywords: Game theory, general equilibrium
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