Farsightedly Stable Networks

27 Pages Posted: 8 Nov 2006

See all articles by P. Jean-Jacques Herings

P. Jean-Jacques Herings

Maastricht University

Ana Mauleon

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

Vincent J. Vannetelbosch

Center for Operations Research and Econometrics (CORE)

Date Written: September 21, 2006

Abstract

We propose a new concept, the pairwise farsightedly stable set, in order to predict which networks may be formed among farsighted players. A set of networks G is pairwise farsightedly stable (i) if all possible pairwise deviations from any network g - G to a network outside G are deterred by the threat of ending worse off or equally well off, (ii) if there exists a farsightedly improving path from any network outside the set leading to some network in the set, and (iii) if there is no proper subset of G satisfying (i) and (ii). We show that a non-empty pairwise farsightedly stable set always exists and we provide a full characterization of unique pairwise farsightedly stable sets of networks. Contrary to other pairwise concepts, pairwise farsighted stability yields a Pareto dominating network, if it exists, as the unique outcome. Finally, we study the relationship between pairwise farsighted stability and other concepts such as the largest consistent set.

Keywords: Networks, Farsighted, Stability, Pairwise, Efficiency

JEL Classification: A14, C70, D20

Suggested Citation

Herings, P. Jean-Jacques and Mauleon Echeverria, Ana Carmen and Vannetelbosch, Vincent J., Farsightedly Stable Networks (September 21, 2006). Available at SSRN: https://ssrn.com/abstract=942743 or http://dx.doi.org/10.2139/ssrn.942743

P. Jean-Jacques Herings (Contact Author)

Maastricht University ( email )

Department of Economics
P.O. Box 616
6200 MD Maastricht
Netherlands
+31 43 3883636 (Phone)
+31 43 3884878 (Fax)

HOME PAGE: http://www.personeel.unimaas.nl/p.herings/herings.htm

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 J. Vannetelbosch

Center for Operations Research and Econometrics (CORE) ( email )

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

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