Flexible network rules for identified externalities

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Abstract

I propose three modifications of Jackson's flexible network axiom (Jackson, 2005) when the structure of externalities across components have been identified. The first one takes into account the information about the externalities across components. The second one allows for coalitional deviations once the network has been formed. Finally, the third one tries to find a compromise with component efficiency (Myerson, 1977a).

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I thank Matthew O. Jackson, Róbert Veszteg, Samuel Danthine, two anonymous referees and the participants at REES held in Vigo in 2007 for very useful comments. This article is a revised version of “A Sensitive Flexible Network Approach”, working paper published in the Malaga Economic Theory Research Center working paper series. This work was initiated during my stay at CORE, Université Catholique de Louvain, as a research fellow. I am grateful for the great atmosphere and support. The latest revision was done while I visited the CIRPEE, UQàM, Montréal. I thank them for their hospitality. I also thank financial support from Junta de Andalucía through grants SEJ-552 and SEJ-1645 and from the Spanish Ministry of Science and Innovation through grant ECO 2008-03674/ECON. The usual disclaimer applies.

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