Pairwise-Stability and Nash Equilibria in Network Formation

28 Pages Posted: 16 Mar 2005  

Antoni Calvo-Armengol

Autonomous University of Barcelona - Department of Economics; IZA Institute of Labor Economics

Rahmi Ilkilic

Autonomous University of Barcelona - Department of Economics

Date Written: March 2005

Abstract

Suppose that individual payoffs depend on the network connecting them. Consider the following simultaneous move game of network formation: players announce independently the links they wish to form, and links are formed only under mutual consent. We provide necessary and sufficient conditions on the network link marginal payoffs such that the set of pairwise stable, pairwise-Nash and proper equilibrium networks coincide, where pairwise stable networks are robust to one-link deviations, while pairwise-Nash networks are robust to one-link creation but multi-link severance. Under these conditions, proper equilibria in pure strategies are fully characterized by one-link deviation checks.

Keywords: Network formation, Pairwise-stability, Proper equilibrium

JEL Classification: C62, C72, D85, L14

Suggested Citation

Calvo-Armengol, Antoni and Ilkilic, Rahmi, Pairwise-Stability and Nash Equilibria in Network Formation (March 2005). FEEM Working Paper No. 34.05. Available at SSRN: https://ssrn.com/abstract=677995 or http://dx.doi.org/10.2139/ssrn.677995

Antoni Calvo-Armengol (Contact Author)

Autonomous University of Barcelona - Department of Economics ( email )

Campus Bellaterra
Barcelona, 08193
Spain
+34 93 581 3068 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Rahmi Ilkilic

Autonomous University of Barcelona - Department of Economics ( email )

Campus Bellaterra
Barcelona, 08193
Spain

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