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Games 2016, 7(4), 40; doi:10.3390/g7040040

Network Formation with Endogenous Link Strength and Decreasing Returns to Investment

Department of Economics and Finance, Hang Seng Management College, Shatin, Hong Kong
Academic Editor: Siegfried Berninghaus
Received: 21 September 2016 / Revised: 24 November 2016 / Accepted: 5 December 2016 / Published: 8 December 2016
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Abstract

We study the formation of networks where agents choose how much to invest in each relationship. The benefit that an agent can derive from a network depends on the strength of the direct links between agents. We assume that the strength of the direct link between any pair of agents is a concave function of their investments towards each other. In comparison with some existing models of network formation where the strength technology is a convex function of investment, we find that (i) the symmetric complete network can dominate the star architecture in terms of total utility; (ii) a dominating symmetric complete network needs not be stable; and, (iii) star and complete networks can be dominated by small-world networks. View Full-Text
Keywords: network formation; endogenous link strength; decreasing returns; small-world network network formation; endogenous link strength; decreasing returns; small-world network
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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So, C.K. Network Formation with Endogenous Link Strength and Decreasing Returns to Investment. Games 2016, 7, 40.

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