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Network Design in Games with Spillovers

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Author Info
Sergio Currarini () (Department of Economics, University Of Venice Ca’ Foscari)

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Abstract

How should an organization be designed in order to provide its members with minimal incentives to defect? And how does the optimal design depend on the type of strategic interaction between defectors and remaining organizational members? This paper addresses such issues in a game theoretic model of cooperation, in which an organization is formally represented by a connected network, and where gains from cooperation are given by a partition function. We show that critical structural features of the organization depend in a clear-cut way on the sign of spillovers. In particular, positive spillovers favor the adoption of dispersed and centralized forms, while negative spillovers favor cohesive and horizontal ones. Moreover, if the organizational form determines all the communication possibilities of members, a highly centralized organization - the star - emerges under positive spillovers, whereas two horizontal architectures - the circle and the complete - emerge under negative spillovers.

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Publisher Info
Paper provided by University of Venice "Ca' Foscari", Department of Economics in its series Working Papers with number 2006_16.

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Length: 24 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:ven:wpaper:2006_16

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Related research
Keywords: Organizational design; networks; group stability; spillovers.;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
D20 - Microeconomics - - Production and Organizations - - - General

References listed on IDEAS
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  1. Bolton, Patrick & Dewatripont, Mathias, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 809-39, November. [Downloadable!] (restricted)
  2. Sergio Currarini, 2006. "Group Stability of Hierarchies in Games with Spillovers," Working Papers 2006_14, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  3. Gabrielle Demange, 2004. "On Group Stability in Hierarchies and Networks," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 754-778, August.
  4. Currarini, Sergio, 2007. "Group stability of hierarchies in games with spillovers," Mathematical Social Sciences, Elsevier, vol. 54(3), pages 187-202, December. [Downloadable!] (restricted)
  5. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March. [Downloadable!] (restricted)
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  6. Jackson, Matthew O. & van den Nouweland, Anne, 2005. "Strongly stable networks," Games and Economic Behavior, Elsevier, vol. 51(2), pages 420-444, May. [Downloadable!] (restricted)
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  7. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August. [Downloadable!] (restricted)
  8. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July. [Downloadable!] (restricted)
  9. Jackson, Matthew O., 2005. "Allocation rules for network games," Games and Economic Behavior, Elsevier, vol. 51(1), pages 128-154, April. [Downloadable!] (restricted)
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  10. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September. [Downloadable!] (restricted)
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