Strategic Interaction and Networks
- (pp. 898-930)
Abstract
Geography and social links shape economic interactions. In industries, schools, and markets, the entire network determines outcomes. This paper analyzes a large class of games and obtains a striking result. Equilibria depend on a single network measure: the lowest eigenvalue. This paper is the first to uncover the importance of the lowest eigenvalue to economic and social outcomes. It captures how much the network amplifies agents' actions. The paper combines new tools—potential games, optimization, and spectral graph theory—to solve for all Nash and stable equilibria and applies the results to R&D, crime, and the econometrics of peer effects.Citation
Bramoullé, Yann, Rachel Kranton, and Martin D'Amours. 2014. "Strategic Interaction and Networks." American Economic Review, 104 (3): 898-930. DOI: 10.1257/aer.104.3.898Additional Materials
JEL Classification
- C72 Noncooperative Games
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D85 Network Formation and Analysis: Theory
- H41 Public Goods
- K42 Illegal Behavior and the Enforcement of Law
- O33 Technological Change: Choices and Consequences; Diffusion Processes
- Z13 Economic Sociology; Economic Anthropology; Social and Economic Stratification