Strategic Interaction and Networks
AbstractThis paper brings a general network analysis to a wide class of economic games. A network, or interaction matrix, tells who directly interacts with whom. A major challenge is determining how network structure shapes overall outcomes. We have a striking result. Equilibrium conditions depend on a single number: the lowest eigenvalue of a network matrix. Combining tools from potential games, optimization, and spectral graph theory, we study games with linear best replies and characterize the Nash and stable equilibria for any graph and for any impact of players’ actions. When the graph is sufficiently absorptive (as measured by this eigenvalue), there is a unique equilibrium. When it is less absorptive, stable equilibria always involve extreme play where some agents take no actions at all. This paper is the first to show the importance of this measure to social and economic outcomes, and we relate it to different network link patterns.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1018.
Date of creation: 2010
Date of revision:
Networks; potential games; lowest eigenvalue; stable equilibria; asymmetric equilibria;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D00 - Microeconomics - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-GTH-2010-05-29 (Game Theory)
- NEP-NET-2010-05-29 (Network Economics)
- NEP-URE-2010-05-29 (Urban & Real Estate Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Zenou, Yves & König, Michael D. & Tessone, Claudio J., 0.
"Nestedness in networks: A theoretical model and some applications,"
- Michael Koenig & Claudio Tessone & Yves Zenou, 2012. "Nestedness in Networks: A Theoretical Model and Some Applications," Discussion Papers 11-003, Stanford Institute for Economic Policy Research.
- König, Michael & Tessone, Claudio J. & Zenou, Yves, 2012. "Nestedness in Networks: A Theoretical Model and Some Applications," CEPR Discussion Papers 8807, C.E.P.R. Discussion Papers.
- Belhaj, Mohamed & Deroïan, Frédéric, 2012. "Risk taking under heterogenous revenue sharing," Journal of Development Economics, Elsevier, vol. 98(2), pages 192-202.
- Lorenzo Burlon, 2012. "How Do Aggregate Fluctuations Depend on the Network Structure of the Economy?," Working Papers in Economics 278, Universitat de Barcelona. Espai de Recerca en Economia.
- Yann Bramoull? & Rachel Kranton & Martin D'Amours, 2014. "Strategic Interaction and Networks," American Economic Review, American Economic Association, vol. 104(3), pages 898-930, March.
- Carlos Lever Guzmán, 2010. "Strategic Spending in Voting Competitions with Social Networks," Working Papers 2010-16, Banco de México.
- Marco Pelliccia, 2012. "Risk-sharing and probabilistic network structure," Birkbeck Working Papers in Economics and Finance 1214, Birkbeck, Department of Economics, Mathematics & Statistics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).
If references are entirely missing, you can add them using this form.