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Chiu Ki So
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[Journal:] Games [ISSN:] 2073-4336 [Volume:] 7 [Year:] 2016 [Issue:] 4 [Pages:] 1-9
We study the formation of networks where agents choose how much to invest in each relationship. The benefit that an agent can derive from a network depends on the strength of the direct links between agents. We assume that the strength of the direct link between any pair of agents is a concave function of their investments towards each other. In comparison with some existing models of network formation where the strength technology is a convex function of investment, we find that (i) the symmetric complete network can dominate the star architecture in terms of total utility; (ii) a dominating symmetric complete network needs not be stable; and, (iii) star and complete networks can be dominated by small-world networks.
network formation
endogenous link strength
decreasing returns
small-world network
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