Shadow links
Förster, Manuel
Förster
Manuel
Mauleon, Ana
Mauleon
Ana
Vannetelbosch, Vincent
Vannetelbosch
Vincent
We propose a framework of network formation where players can form two types of links: public links observed by everyone and shadow links generally not observed by others. We introduce a novel solution concept called rationalizable conjectural pairwise stability, which generalizes Jackson and Wolinsky (1996)'s pairwise stability notion to accommodate shadow links. We first show that a network is stable if there exist beliefs such that each player conjectures to be in a network that is stable under correct beliefs, and in which she does not want to alter her links unilaterally. We then derive a mechanism to construct a stable network that is not stable under correct beliefs. Third, we establish that the set of stable networks is shrinking in the players' observation radius. Finally, we illustrate our framework in the context of two specific models and show that players may over(under)estimate others' connections and hence under(over)connect.
197
2021