The Role of Trust in Costly Network Formation

R.P. Gilles, S. Sarangi

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    Abstract

    We consider game theoretic models of social network formation.In this paper we limit our investigation to game theoretic models of network formation that are based on individual actions only.Our approach is based on three simple and realistic principles: (1) Link formation is a binary process of consent.(2) Link formation is costly.(3) The class of network payo functions should be as general as possible.We provide characterizations of stable networks under the hypothesis of mutual consent in the cases of two-sided and one-sided link formation costs. Furthermore, we introduce a new equilibrium concept based on a limited, realistic form of farsightedness or "trust" in network formation.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherMicroeconomics
    Number of pages36
    Volume2003-53
    Publication statusPublished - 2003

    Publication series

    NameCentER Discussion Paper
    Volume2003-53

    Keywords

    • game theory
    • models
    • general equilibrium
    • stability

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    Gilles, R. P., & Sarangi, S. (2003). The Role of Trust in Costly Network Formation. (CentER Discussion Paper; Vol. 2003-53). Microeconomics.