On Efficiency and Stability in Two-way Flow Network with Small Decay: A Note
Banchongsan Charoensook (Department of International Business, Keimyung Adams College at Keimyung University)
Network Formation, Nash Network, Two-way Flow Network, Agent Heterogeneity, Efficient Network
Most literature in strategic network formation shows that there is a substantial tension between stability and efficiency. In this note, I show that such is not the case in the twoway flow model with small decay studied by Bala and Goyal (2000a) and De Jaegher and Kamphorst (2015). Specifically, I show that every link receiver in a Nash network serves as an efficient trans-mitter of information. I also generalize this result to the case of player hetero-geneity and then provide a fine-detail characterization of effiicient networks.
Suggested citation: B. Charoensook, (2022), ‘On Efficiency and Stability in Two-way Flow Network with Small Decay: A Note’, Nota di Lavoro 011.2022, Milano, Italy: Fondazione Eni Enrico Mattei