Network formation with myopic and farsighted players

Printer-friendly version
Working paper
Chenghong Luo, Ana Mauleon, Vincent Vannetelbosch
Issue number: 
CORE Discussion Papers
Université catholique de Louvain
We study the formation of networks where myopic and farsighted individuals decide with whom they want to form a link, according to a distance-based utility function that weighs the costs and beneÖts of each connection. We propose the notion of myopic-farsighted stable set to determine the networks that emerge when some individuals are myopic while others are farsighted. A myopic-farsighted stable set is the set of networks satisfying internal and external stability with respect to the notion of myopic-farsighted improving path. In the case of a homogeneous population (either all myopic or all farsighted), a conáict between stability and e¢ ciency is likely to arise. But, once the population becomes mixed, the conáict vanishes if there are enough farsighted individuals. In addition, we characterize the myopic-farsighted stable set for any utility function when all individuals are myopic.
Developed by Paolo Gittoi