Strategic Interaction and Networks

Yann Bramoullé, Rachel Kranton and Martin d'Amours
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Rachel Kranton: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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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.

Keywords: Geography economic; Social economic; Industry; School; Market; Game (search for similar items in EconPapers)
Date: 2014-03
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Citations: View citations in EconPapers (206)

Published in The American Economic Review, 2014, 104 (3), pp.898-930. ⟨10.1257/aer.104.3.898⟩

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Related works:
Journal Article: Strategic Interaction and Networks (2014)
Working Paper: Strategic Interaction and Networks (2014)
Working Paper: Strategic Interaction and Networks (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-00978692

DOI: 10.1257/aer.104.3.898

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