Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2010-12-10 Number: 10-125/1 Author-Name: K. De Jaegher Author-Workplace-Name: Utrecht University Author-Name: J.J.A. Kamphorst Author-Workplace-Name: Erasmus University Rotterdam Title: Two-way Flow Networks with Small Decay Abstract: This discussion paper resulted in an article in the Journal of Economic Behavior & Organization, 2015, 109, 217-239.
This paper characterizes the set of equilibrium networks in the two-way flow model of network formation with small decay, and this for all increasing benefit functions of the players. We show that as long as the population is large enough, this set contains large- as well as small-diameter networks. For all benefit functions, the periphery-sponsored star is the most stable. When the marginal benefits of information are constant, all non-star networks are equally stable. With increasing marginal benefits of information, small-diameter networks in general tend to be more stable. However, with decreasing marginal benefits of information, large-diameter networks tend to be the most robust along with the periphery-sponsored star. Classification-JEL: C72, D85 Keywords: Network formation, two-way flow model, decay, non-linear benefits File-Url: http://papers.tinbergen.nl/10125.pdf File-Format: application/pdf File-Size: 303747 bytes Handle: RePEc:tin:wpaper:20100125