A bargaining approach to coordination in networks (Q956589)

This paper presents a model in which players interact via the formation of costly links and the benefits of bilateral interactions are determined by a stag-hunt game. A novel contribution of this paper is that the fraction of the cost borne by each player involved in a bilateral link is not fixed exogenously, but from bargaining. The model analyses both in a static and in a dynamic setting. Whereas the static game has multiplicity of equilibria, the paper shows that the only one is stochastically stable.