Abstract
A simple link-formation game is developed to analyze efficiency of construction of network infrastructures, especially road networks, under locally-distributed authorities of network construction decision. In the model, three serially-located local governments (nodes) are eligible to provide its own roads (links) to connect to the neighboring nodes aiming at minimizing the provision cost while satisfying local demand for connection. Inefficiency of equilibrium network provision by distributed authority is clarified. The intervention by central authority with some ‘cooperation rule’ under which links have to be constructed through some bargaining (cooperation) by the both-end nodes is introduced. Its effects on network efficiency are also analyzed. Population distribution and other conditions that the cooperation rule remedies inefficiency are then clarified.
