This thesis is concerned with the analysis of economic network formation. There are three novel sections to this thesis (Chapters 5, 6 and 8). In the first, the non-cooperative communication network formation model of Bala and Goyal (2000) (BG) is re-assessed under conditions of no inertia. It is found that the Strict Nash circle (or wheel) structure is still the equilibrium outcome for n = 3 under no inertia. However, a counter-example for n = 4 shows that with no inertia infinite cycles are possible, and hence the system does not converge. In fact, cycles are found to quickly dominate outcomes for n > 4 and further numerical simulations of conditions approximating no inertia (probability of updating > 0.8 to 1) indicate that cycles account for a dramatic slowing of convergence times. These results, together with the experimental evidence of Falk and Kosfeld (2003) (FK) motivate the second contribution of this thesis. A novel artificial agent model is constructed that allows for a vast strategy space (including the Best Response) and permits agents to learn from each other as was indicated by the FK results. After calibration, this model replicates many of the FK experimental results and finds that an externality exploiting ratio of benefits and costs (rather than the difference) combined with a simple altruism score is a good proxy for the human objective function. Furthermore, the inequity aversion results of FK are found to arise as an emergent property of the system. The third novel section of this thesis turns to the nature of network formation in a trust-based context. A modified Iterated Prisoners' Dilemma (IPD) model is developed which enables agents to play an additional and costly network forming action. Initially, canonical analytical results are obtained despite this modification under uniform (non-local) interactions. However, as agent network decisions are 'turned on' persistent cooperation is observed. Furthermore, in contrast to the vast majority of non-local, or static network models in the literature, it is found that a-periodic, complex dynamics result for the system in the long-run. Subsequent analysis of this regime indicates that the network dynamics have fingerprints of self-organized criticality (SOC). Whilst evidence for SOC is found in many physical systems, such dynamics have been seldom, if ever, reported in the strategic interaction literature.
| Identifer | oai:union.ndltd.org:ADTP/187210 |
| Date | January 2007 |
| Creators | Angus, Simon Douglas, Economics, Australian School of Business, UNSW |
| Publisher | Awarded by:University of New South Wales. Economics |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | Copyright Simon Douglas Angus, http://unsworks.unsw.edu.au/copyright |
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