Stochastic model of network formation with asymmetric players

We propose a model of a network formation using the theory of stochastic games with random terminal time. Initially, the leader proposes a joint project in the form of a network to the players. Then, the players have the opportunities to form new links with each other to update the network proposed by the leader. Any player's payoff at any stage is determined by the network structure. It is also assumed that the formation of links proposed by the players is random. The duration of the game is also random. As a result of the players' actions and the implementation of the random steps of the Nature, a network is formed. We consider a cooperative approach to network formation, and we use the CIS-value as a cooperative solution. In this paper, a recurrent formula for its derivation in any cooperative subgame is obtained. The paper also investigates the dynamic consistency of CIS-value. The theoretical results are demonstrated by a numerical example.