Chichilnisky, Graciela (1995): The evolution of a global network: a game of coalition formation. Published in: Journal of International and Comparative Economics , Vol. 4, (1995): pp. 179-197.
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The paper explores the evolution of global networks. Examples include networks which process cross-border securities trades: CEDEL, Euroclear, and FITEL. I formalize a network market with many users: due to fixed costs the supply is downward slopping, and due to externalities the demand is upward slopping. Using game theory and dynamic stochastic analysis I show how the network evolves. I introduce the concept of critical mass, define a stochastic process of coalition formation, and specify the long run properties of the resulting network markets, including dynamics and stability properties, and the number of stable configurations. I explain the formation of coalitions of users when the players are heterogeneous: there exist clusters of players which produce more externalities to each other that they do the rest: e.g. global custodians. The gains from distinguishing such clusters are surprisingly large: the probability of success of the network "star-up" increases exponentially with decreases in the cluster size.
|Item Type:||MPRA Paper|
|Original Title:||The evolution of a global network: a game of coalition formation|
|Keywords:||global networks; global markets; global custodians; coalition; network game; critical mass|
|Subjects:||F - International Economics > F3 - International Finance
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D85 - Network Formation and Analysis: Theory
|Depositing User:||Graciela Chichilnisky|
|Date Deposited:||27. Apr 2008 04:14|
|Last Modified:||14. Feb 2013 12:52|
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