The Stability and Efficiency of Network Structure with Joining Costs

Abstract

This paper aim to study the stability and efficiency of a social and economic network in which the various elements are closely related by the network structure, while self-interested individuals can form or sever links with the network by incurring joining costs. Our novel feature is that we consider joining costs in network formation. Firstly, We also propose the concept of a stable network that is similar to the pairwise stability of Jackson and Wolinsky (1996) based on joining costs. We examine changes in the stability, efficiency and network structure. For a link model, we identify the main characteristics of stable and efficient networks. It is important to note that a stable network is not always efficient. Next, we show that the range of stable networks has been extended through the evolutionary process of developing networks with joining costs. Moreover, consistency, stability and efficiency also enhance the networks structure.