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Strategic Interaction and Networks

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  • Yann Bramoull?
  • Rachel Kranton
  • Martin D'Amours
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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.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.3.898
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 104 (2014)
    Issue (Month): 3 (March)
    Pages: 898-930

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    Handle: RePEc:aea:aecrev:v:104:y:2014:i:3:p:898-930

    Note: DOI: 10.1257/aer.104.3.898
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    References

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    1. James D. Adams, 2002. "Comparative localization of academic and industrial spillovers," Journal of Economic Geography, Oxford University Press, vol. 2(3), pages 253-278, July.
    2. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
    3. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
    4. David Card & Laura Giuliano, 2011. "Peer Effects and Multiple Equilibria in the Risky Behavior of Friends," NBER Working Papers 17088, National Bureau of Economic Research, Inc.
    5. Yann Bramoullé & Rachel Kranton & Martin D'Amours, 2010. "Strategic Interaction and Networks," Cahiers de recherche 1018, CIRPEE.
    6. Peter Kooreman & Adriaan R. Soetevent, 2007. "A discrete-choice model with social interactions: with an application to high school teen behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 599-624.
    7. Daiji Kawaguchi, 2002. "Peer Effects on Substance Use among American Teenagers," ISER Discussion Paper 0567, Institute of Social and Economic Research, Osaka University.
    8. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
    9. Timothy G. Conley & Christopher R. Udry, 2005. "Learning about a new technology: pineapple in Ghana," Proceedings, Federal Reserve Bank of San Francisco.
    10. Esther Duflo & Emmanuel Saez, 2000. "Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices," NBER Working Papers 7735, National Bureau of Economic Research, Inc.
    11. Mohamed Belhaj & Yann Bramoullé & Frédéric Deroïan, 2012. "Network Games under Strategic Complementarities," Working Papers halshs-00793439, HAL.
    12. Trogdon, Justin G. & Nonnemaker, James & Pais, Joanne, 2008. "Peer effects in adolescent overweight," Journal of Health Economics, Elsevier, vol. 27(5), pages 1388-1399, September.
    13. Rauch, J E & Casella, Alessandra, 2001. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," University of California at San Diego, Economics Working Paper Series qt2k8626fr, Department of Economics, UC San Diego.
    14. Alejandro Gaviria & Steven Raphael, 2001. "School-Based Peer Effects And Juvenile Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 257-268, May.
    15. Bloch, Francis & Zenginobuz, Unal, 2004. "The Effect of Spillovers on the Provision of Local Public Goods," MPRA Paper 186, University Library of Munich, Germany, revised 05 Oct 2006.
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    Cited by:
    1. Finn Christensen, 2014. "Demand with Consumption Externalities," Working Papers 2014-02, Towson University, Department of Economics, revised Apr 2014.

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