Network formation and social coordination

Arbeitspapier

This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by unilaterally investing in costly pair-wise links. In this context, individual efforts to balance the costs and benefits of links are shown to lead to a unique equilibrium interaction architecture. The dynamics of network formation, however, has powerful effects on individual behavior: if costs of forming links are below a certain threshold then players coordinate on the risk-dominant action, while if costs are above this threshold then they coordinate on the efficient action. These findings are robust to a variety of modifications in the link formation process. For example, it may be posited that, in order for a link to materialize, the link proposal must be two-sided (i.e. put forward by both agents); or that, in case of a unilateral proposal, the link may be refused by the other party (if, say, the latter's net payoff is negative); or that a pair of agents can play the game even if connected only through indirect links.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 481

Classification and Topics

• Classification: Wirtschaft
• Subject: Networks, Links, Coordination games, Equilibrium selection, Risk dominance, Efficiency ; Spieltheorie ; Kooperatives Spiel ; Netzwerk ; Theorie ; Koordination ; Gleichgewicht

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Goyal, Sanjeev ; Vega-Redondo, Fernando
• Event: Veröffentlichung
• (who): Queen Mary University of London, Department of Economics
• (where): London
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/62882
• Last update: 10.03.2025, 11:41 AM CET