Ambrus, Attila; Chandrasekhar, Arun G.; Elliott, Matt - National Bureau of Economic Research (NBER) - 2014
This paper studies costly network formation in the context of risk sharing. Neighboring agents negotiate agreements as in Stole and Zwiebel (1996), which results in the social surplus being allocated according to the Myerson value. We uncover two types of inefficiency: overinvestment in social...