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Published September 2000 | public
Journal Article

The stability and efficiency of directed communication networks

Abstract

This paper analyzes the formation of directed networks where self-interested individuals choose with whom they communicate. The focus of the paper is on whether the incentives of individuals to add or sever links will lead them to form networks that are efficient from a societal viewpoint. It is shown that for some contexts, to reconcile efficiency with individual incentives, benefits must either be redistributed in ways depending on "outsiders" who do not contribute to the productive value of the network, or in ways that violate equity (i.e., anonymity). It is also shown that there are interesting contexts for which it is possible to ensure that efficient networks are individually stable via (re)distributions that are balanced across components of the network, anonymous, and independent of the connections of non-contributing outsiders.

Additional Information

© Springer-Verlag Berlin Heidelberg 2000. Matthew Jackson gratefully acknowledges financial support under NSF grant SBR 9507912. We thank Anna Bogomolnaia for providing the proof of a useful lemma. This paper supercedes a previous paper of the same title by Jackson.

Additional details

Created:
August 19, 2023
Modified:
October 18, 2023