Games on Networks: Direct Complements and Indirect Substitutes

Sergio Currarini (), Elena Fumagalli and Fabrizio Panebianco

No 14/13, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We study linear quadratic games played on a network where strategies are complements between neighbors and substitutes between agents at distance-two. We provide micro-founded problems where this pattern of interaction is due to a local congestion effect. Equilibrium behavior systematically differs from a model of peer effects only. First, the ranking of equilibrium actions may not follow that of network centralities, with large behavior prevailing at the periphery of the network. Second, network density affects aggregate behavior in a non-monotonic way. Third, segregating agents according to their preferences has a non-monotonic effect on the polarization of behavior. We relate these patterns to evidence from smoking networks, industrial districts and ethnically fragmented societies. We conclude by discussing the implications for the identification of peer effects.

Keywords: Games on Networks; Peer Effects; Key-player; Centrality; Congestion. (search for similar items in EconPapers)
JEL-codes: C7 D85 H23 I1 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-gth, nep-net, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Games on Networks: Direct Complements and Indirect Substitutes (2013)
Working Paper: Games on Networks: Direct Complements and Indirect Substitutes (2013)
Working Paper: Games on Networks: Direct Complements and Indirect Substitutes (2012)
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