Stability and equilibrium selection in a link formation game |
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Authors: | Rodrigo Harrison Roberto Muñoz |
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Institution: | (1) Instituto de Economía, Pontificia Universidad Católica de Chile, Av. Vicuna Mackenna 4860, Macul, Santiago, Chile;(2) Departamento de Industrias, Universidad Técnica Federico Santa María, Avenida Santa Maria 6400, Vitacura, Santiago, Chile |
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Abstract: | In this paper we study a static link formation game under consent that has multiple Nash equilibria. In the literature, the
use of coalitional refinements has been the standard approach to select among equilibria. Alternatively, based on the Global
Games theory, a non cooperative equilibrium selection approach is proposed, so as to select those Nash equilibria that are
robust to the introduction of incomplete information. Interestingly, the equilibrium selected is unique and it is in conflict
with those predicted by the commonly used coalitional refinements. Furthermore, a conflict is found between stability and
efficiency even when no such conflict exists with the coalitional refinements.
We are especially grateful to Deborah Minehart, Roger Lagunoff, Daniel Vincent, Peter Cramton, Luca Anderlini, Axel Anderson,
Felipe Zurita, Francis Bloch, Colin Stewart, the editor and three anonymous referees for their valuable comments that contributed
to improve the paper. We also thank participants at the EEA-ESEM, Stockholm 2003, the IUSC conference, Columbia University
2003, and the Workshop on Global Games, SUNY, Stony Brook, 2007. |
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Keywords: | Global games Networks Equilibrium selection |
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