Endogenous Correlated Network Dynamics
Abstract: We model the structure and strategy of social interactions prevailing at any point in time as a directed network and we address the following open question in the theory of social and economic network formation: given the rules of network and coalition formation, preferences of individuals over networks, strategic behavior of coalitions in forming networks, and the trembles of nature, what network and coalitional dynamics are likely to emerge and persist. Our main contributions are to formulate the problem of network and coalition formation as a dynamic, stochastic game and to show that: (i) the game possesses a correlated stationary Markov equilibrium (in network and coalition formation strategies), (ii) together with the trembles of nature, this correlated stationary equilibrium determines an equilibrium Markov process of network and coalition formation, and (iii) this endogenous Markov process possesses a finite set of ergodic measures, and generates a finite, disjoint collection of nonempty subsets of networks and coalitions, each constituting a basin of attraction. Moreover, we extend to the setting of endogenous Markov dynamics the notions of pairwise stability (JacksonWolinsky, 1996) and the path dominance core (Page-Wooders, 2009a). We show that in order for any network-coalition pair to emerge and persist, it is necessary that the pair reside in one of finitely many basins of attraction. The results we obtain here for endogenous network dynamics and stochastic basins of attraction are the dynamic analogs of our earlier results on endogenous network formation and strategic basins of attraction in static, abstract games of network formation (Page and Wooders, 2009a), and build on the seminal contributions of Jackson and Watts (2002), Konishi and Ray (2003), and Dutta, Ghosal, and Ray (2005).
Speaker's Bio: Frank H. Page, Jr. is a Professor at Indiana University in Bloomington. He received his Ph.D. at the University of Illinois in 1980. His current research interests lie in two areas: (1) strategic network formation and (2) competitive nonlinear pricing games. In the area of strategic network formation, his current work focuses on the emergence of stochastic network dynamics from strategic behavior and stochastic elements in nature. In the area of competitive nonlinear pricing games, his current work focuses on the Nash existence problem in such games. Professor Page is an Associate Editor of the Journal of Public Economic Theory, the Annals of Finance, and Economics Bulletin. He is regularly Visiting Professor at the University of Paris 1 (Pantheon-Sorbonne) and a Vice President of the Association for Public Economic Theory.