Implementation of welfare maximizing networks

Abstract We consider network formation, where some locations can be connected. Every network has a cost and every agent has an individual value of every network. A planner aims at implementing a welfare maximizing network and allocating the resulting cost, but information is asymmetric: agents are fully informed and the planner is ignorant. Full implementation in Nash and strong Nash equilibria is studied. We show the correspondence consisting of welfare maximizing networks and individually rational cost allocations is implementable. We construct a minimal Nash implementable, welfare maximizing, and individually rational solution in the set of upper hemi-continuous and Nash implementable solutions. It is not possible to implement solutions such as the Shapley value unless we settle for partial implementation.