Abstract
We study the stability and efficiency of social and economic networks, when self-interested individuals can form or sever links. First, for two stylized models, we characterize the stable and efficient networks. There does not always exist a stable network that is efficient. Next, we show that this tension persists generally: to assure that there exists a stable network that is efficient, one is forced to allocate resources to nodes that are not responsible for any of the production. We characterize one such allocation rule: the equal split rule, and another rule that arises naturally from bargaining of the players. Journal Economic Literature Classification Numbers: A14, D20, J00.
Original language | English (US) |
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Pages (from-to) | 44-74 |
Number of pages | 31 |
Journal | Journal of Economic Theory |
Volume | 71 |
Issue number | 1 |
DOIs | |
State | Published - Oct 1996 |
Funding
* We thank Kyle Bagwell, Dawn Iacobucci, Ehud Kalai, Bart Lipman, James Montgomery, Roger Myerson, Anne van den Nouweland, Jeroen Swinkels, Sang-Seung Yi, and an anonymous referee, for helpful written comments and or conversations. Our understanding and presentation of the results have benefited from the interaction in seminar presentations, whose participants we thank without listing. Support from U.S.-Israel BSF Grant 90-00165 is gratefully acknowledged.
ASJC Scopus subject areas
- Economics and Econometrics