A Noncooperative Model of Contest Network Formation

In this paper we study a model of weighted network formation. The bilateralinteraction is modeled as a Tullock contest game with the possibility of adraw. We describe stable networks under different concepts of stability. Weshow that a Nash stable network is either the empty network or the completenetwork. The complete network is not immune to bilateral deviations. When weallow for limited farsightedness, stable networks immune to bilateraldeviations must be complete $M$-partite networks, with partitions of differentsizes. The empty network is the efficient network. We provide severalcomparative statics results illustrating the importance of network structure inmediating the effects of shocks and interventions. In particular, we show thatan increase in the likelihood of a draw has a non-monotonic effect on the levelof wasteful contest spending in the society. To the best of our knowledge, thispaper is the first attempt to model weighted network formation when the actionsof individuals are neither strategic complements nor strategic substitutes.