ECONOMIC NETWORKING AND STABILITY

In this paper we discuss finite economies with the presence of transaction costs and with decreasing, constant or increasing returns. In general such an economy may have no general equilibrium existence and may even have an empty core. We analyse the trading networks of such an economy, introducing the concepts of locally stable network structure, un-dominated locally stable network structures and most stable network structures. We point out that the set of most stable network structures could be treated as a solution concept for the empty core economies both in theoretical analysis and in application. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Asia Pty Ltd