Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2000-11-10
Number: 00-093/1
Author-Name: Sanjeev Goyal
Author-Email: goyal@few.eur.nl
Author-Workplace-Name: Erasmus University Rotterdam
Author-Name: Fernando Vega-Redondo
Author-Email: vega@merlin.fae.ua.es
Author-Workplace-Name: Universidad de Alicante, and Universitat Pompeu Fabra, Barcelona
Title: Learning, Network Formation and Coordination
Abstract: In many economic and social contexts, individual players choose their partners and also decide ona mode of behavior in interactions with these partners. This paper develops a simple model toexamine 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 aplayer can establish ties with other players by investing in costly pair-wise links.We show that individual efforts to balance the costs and benefits of links sharply restrict therange of stable interaction architectures; equilibrium networks are either complete or have the stararchitecture. Moreover, the process of network formation has powerful effects on individualbehavior: if costs of forming links are low then players coordinate on the risk-dominant action,while if costs of forming links are high then they coordinate on the efficient action.
File-Url: https://papers.tinbergen.nl/00093.pdf
File-Format: application/pdf
File-Size: 444514 bytes
Handle: RePEc:tin:wpaper:20000093