Working paper

Issue number:

2018/25

Series:

CORE Discussion Papers

Publisher:

Université catholique de Louvain

Year:

2018

Working Paper [1]

We study the formation of networks where myopic and farsighted individuals
decide with whom they want to form a link, according to a distance-based utility
function that weighs the costs and beneÖts of each connection. We propose the
notion of myopic-farsighted stable set to determine the networks that emerge when
some individuals are myopic while others are farsighted. A myopic-farsighted stable
set is the set of networks satisfying internal and external stability with respect to
the notion of myopic-farsighted improving path. In the case of a homogeneous
population (either all myopic or all farsighted), a conáict between stability and
e¢ ciency is likely to arise. But, once the population becomes mixed, the conáict
vanishes if there are enough farsighted individuals. In addition, we characterize the
myopic-farsighted stable set for any utility function when all individuals are myopic.