FEEM working papers "Note di lavoro" series
2005 .048

A Characterization of Stochastically Stable Networks

Authors: Vincent Vannetelbosch, Olivier Tercieux
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Network formation,Pairwise stability,Stochastic stability
JEL n.: C70,D20
JEL: International Journal of Game Theory
Pages: Vol. 34, No. 3, pp. 351-369
Date: 10/2006


Jackson and Watts [J. of Econ. Theory 71 (2002), 44-74] have examined the dynamic formation and stochastic evolution of networks. We provide a refinement of pairwise stability, p−pairwise stability, which allows us to characterize the stochastically stable networks without requiring the "tree construction" and the computation of resistance that may be quite complex. When a 1/2−pairwise stable network exists, it is unique and it coincides with the unique stochastically stable network. To solve the inexistence problem of p−pairwise stable networks, we define its set-valued extension with the notion of p−pairwise stable set. The 1/2−pairwise stable set exists and is unique. Any stochastically stable network is included in the 1/2−pairwise stable set. Thus, any network outside the 1/2−pairwise stable set must be considered as a nonrobust network. We also show that the 1/2−pairwise stable set can contain no pairwise stable network and we provide examples where a set of networks is more "stable" than a pairwise stable network.

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