Stability of networks under horizon-K farsightedness

P. Jean-Jacques Herings, Ana Mauleon, Vincent Vannetelbosch

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We introduce the concept of a horizon-K farsighted set to study the influence of the degree of farsightedness on network stability. The concept generalizes existing concepts where all players are either fully myopic or fully farsighted. A set of networks GK is a horizon-K farsighted set if three conditions are satisfied. First, external deviations should be horizon-K 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 horizon-K farsighted set always exists and that the horizon-1 farsighted set G1 is always unique. For generic allocation rules, the set G1 always contains a horizon-K farsighted set for any K. We provide easy to verify conditions for a set of networks to be a horizon-K farsighted set, and we consider the efficiency of networks in horizon-K farsighted sets. We discuss the effects of players with different horizons in an example of criminal networks.

Original languageEnglish
Pages (from-to)177-201
Number of pages25
JournalEconomic Theory
Volume68
Issue number1
Early online date17 Apr 2018
DOIs
Publication statusPublished - Jul 2019

Keywords

  • Limited farsightedness
  • Stability
  • Efficiency
  • Networks
  • STABLE SETS

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