Template-type: ReDif-Paper 1.0
Author-Name: Herings, P.J.J.
Author-workplace-name: Microeconomics & Public Economics
Author-Name: Mauleon, A.
Author-workplace-name: Externe publicaties SBE
Author-Name: Vannetelbosch, V.
Author-workplace-name: Externe publicaties SBE
Title: Stability of networks under level-k farsightedness
Abstract: We provide a tractable concept that can be used to study the influence of the degree of farsightedness on network stability. A set of networks GK is a level-K farsightedly stable set if three conditions are satisfied. First, external deviations should be deterred. Second, from any network outside of GK there is a sequence of farsighted improving paths of length smaller than or equal to K leading to some network in GK. Third, there is no proper subset of GK satisfying the first two conditions.
We show that a level-K farsightedly stable set always exists and we provide a sufficient condition for the uniqueness of a level-K farsightedly stable set. There is a unique level-1 farsightedly stable set G1 consisting of all networks that belong to closed cycles. Level-K farsighted stability leads to a refinement of G1 for generic allocation rules. We then provide easy to verify conditions for a set to be level-K farsightedly stable and we consider the relationship between level-K farsighted stability and efficiency of networks. We show the tractability of the concept by applying it to a model of criminal networks.
Series: GSBE Research Memoranda
Creation-Date: 20140101
Number: 030
File-URL: https://cris.maastrichtuniversity.nl/ws/files/1443497/guid-17a8d1b5-aca1-4303-96ac-d62bd9ab3fe2-ASSET1.0.pdf
File-Format: application/pdf
File-Size: 583497
Handle: Repec:unm:umagsb:2014030
DOI: 10.26481/umagsb.2014030