Characterization of efficient networks in a generalized connections model with endogenous link strength

  1. Norma Olaizola
  2. Federico Valenciano
Journal:
SERIEs : Journal of the Spanish Economic Association

ISSN: 1869-4195

Year of publication: 2020

Volume: 11

Issue: 3

Pages: 341-367

Type: Article

DOI: 10.1007/S13209-020-00212-6 DIALNET GOOGLE SCHOLAR lock_openOpen access editor

More publications in: SERIEs : Journal of the Spanish Economic Association

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Abstract

We consider a natural generalization of Jackson and Wolinsky’s (J Econ Theory 71:44–74, 1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly non-empty efficient networks, in the sense of maximizing the aggregate profit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.

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